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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTIONS 13 AND 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 28, 2002
Commission file number 0-14030
ARK RESTAURANTS CORP.
----------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
New York 13-3156768
--------------------------------- ------------------------------------
(State or Other Jurisdiction of (IRS Employer Identification No.)
Incorporation or Organization)
85 Fifth Avenue, New York, NY 10003
------------------------------------------------------- ----------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (212) 206-8800
Securities registered pursuant to Section 12(b) of the Act: None.
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.01.
Indicate by check mark whether the Registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendments to this Form 10-K. [ ]
Indicate by check mark whether the Registrant is an accelerated filer
(as defined in Exchange Act Rule 12b-2). Yes No X
--- ---
The aggregate market value at December 20, 2002 of shares of the
Registrant's Common Stock, $.01 par value (based upon the closing price per
share of such stock on the Nasdaq National Market) held by non-affiliates of the
Registrant was approximately $11,552,453. Solely for the purposes of this
calculation, shares held by directors and officers of the Registrant have been
excluded. Such exclusion should not be deemed a determination or an admission by
the Registrant that such individuals are, in fact, affiliates of the Registrant.
At December 20, 2002, there were outstanding 3,181,000 shares of the
Registrant's Common Stock, $.01 par value.
Documents Incorporated by Reference: Portions of the Registrant's definitive
proxy statement to be filed not later than January 26, 2003 are incorporated by
reference in Part III, Items 10, 11, 12 and 13 of this Report.
PART I
Item 1. Business
Overview
Ark Restaurants Corp. (the "Registrant" or the "Company") is a New York
corporation formed in 1983. Through its subsidiaries, it owns and operates 26
restaurants and bars, 12 fast food concepts, catering operations, and wholesale
and retail bakeries. Initially its facilities were located only in New York
City. At this time, 12 of the restaurants are located in New York City, four are
located in Washington, D.C., nine are located in Las Vegas, Nevada, and one is
located in Islamorada, Florida. The Company's Las Vegas operations include three
restaurants within the New York-New York Hotel & Casino Resort, and operation of
the resort's room service, banquet facilities, employee dining room and eight
food court operations. The Company also owns and operates two restaurants, two
bars and four food court facilities at the Venetian Casino Resort, one
restaurant at the Neonopolis Center at Fremont Street, and one restaurant within
the Forum Shops at Caesar's Shopping Center.
In addition to the shift from a Manhattan-based operation to a
multi-city operation, the nature of the facilities operated by the Company has
shifted from smaller, neighborhood restaurants to larger, destination
restaurants intended to benefit from high patron traffic attributable to the
uniqueness of the restaurant's location. Most of the Company's restaurants which
are in operation and which have been opened in recent years are of the latter
description. These include the restaurant operations at the New York-New York
Hotel & Casino in Las Vegas, Nevada (1997); the Stage Deli located at the Forum
Shops in Las Vegas, Nevada, and Red, located at the South Street Seaport in New
York (1998); Thunder Grill in Union Station, Washington, D.C. (1999); two
restaurants and four food court facilities at the Venetian Casino Resort in Las
Vegas, Nevada (2000); and a restaurant, The Saloon, at the Neonopolis Center in
downtown Las Vegas, Nevada (2002). The Company is not currently committed to any
new projects. The Company has sold a number of its smaller, neighborhood
restaurants.
The names and themes of each of the Company's restaurants are different
except for the Company's three America restaurants, two Sequoia restaurants, two
Gonzalez y Gonzalez restaurants and two Lutece restaurants. The menus in the
Company's restaurants are extensive, offering a wide variety of high quality
foods at generally moderate prices. Of the Company's restaurants, the two Lutece
restaurants may be classified as expensive. The atmosphere at many of the
restaurants is lively and extremely casual. Most of the restaurants have
separate bar areas. A majority of the net sales of the Company is derived from
dinner as opposed to lunch service. Most of the restaurants are open seven days
a week and most serve lunch as well as dinner.
While decor differs from restaurant to restaurant, interiors are marked
by distinctive architectural and design elements which often incorporate
dramatic interior open spaces and extensive glass exteriors. The wall
treatments, lighting and decorations are typically vivid, unusual and, in some
cases, highly theatrical.
The following table sets forth information with respect to the
Company's facilities currently in operation.
2
Seating
Capacity(2)
Year Restaurant Size Indoor- Lease
Name Location Opened(1) (Square Feet) (Outdoor) Expiration(3)
- ---- -------- --------- -------------- ------------- ------------
Metropolitan Cafe First Avenue 1982 4,000 180(50) 2006
(between 52nd and 53rd
Streets)
New York, New York
Ernie's Broadway 1983 6,600 300 2008
(between 75th and 76th
Streets)
New York, New York
America 18th Street 1984 9,600 350 2004
(between Fifth Avenue
and Broadway)
New York, New York
Jack Rose Eighth Avenue 1986 8,000 400 2011
(at 47th Street)
New York, New York
El Rio Grande (4)(5) Third Avenue 1987 4,000 160 2014
(between 38th and 39th
Streets)
New York, New York
Gonzalez y Gonzalez Broadway 1989 6,000 250 2007
(between Houston and
Bleecker Streets)
New York, New York
America Union Station 1989 10,000 400 2009
Washington, D.C.
Center Cafe Union Station 1989 4,000 200 2009
Washington, D.C.
Sequoia Washington Harbour 1990 26,000 600(400) 2017
Washington, D.C.
Sequoia South Street Seaport 1991 12,000 300(100) 2006
New York, New York
Canyon Road First Avenue 1984 2,500 130 2009
(between 76th and 77th
Streets)
New York, New York
3
Seating
Capacity(2)
Year Restaurant Size Indoor- Lease
Name Location Opened(1) (Square Feet) (Outdoor) Expiration(3)
- ---- -------- --------- -------------- ----------- ------------
Lutece East 50th Street 1994 2,500 92 2019
(between Second and
Third Avenues)
New York, New York
Lorelei Restaurant Islamorada, Florida 1994 10,000 400 2029
and Cabana Bar
Columbus Bakery Columbus Avenue 1988 3,000 75 2007
(between 82nd and 83rd
Streets)
New York, New York
Bryant Park Grill & Bryant Park 1995 25,000 180(820) 2025
Cafe New York, New York
Columbus Bakery First Avenue 1995 2000 75 2006
(between 52nd and 53rd
Streets)
New York, New York
America New York-New York Hotel 1997 20,000 450 2017(6)
and Casino
Las Vegas, Nevada
Gallagher's New York-New York 1997 5,500 180 2017(6)
Steakhouse Hotel & Casino
Las Vegas, Nevada
Gonzalez y Gonzalez New York-New York 1997 2,000 120 2017(6)
Hotel & Casino
Las Vegas, Nevada
Village Eateries (7) New York-New York 1997 6,300 400(*) 2017(6)
Hotel & Casino
Las Vegas, Nevada
The Grill Room (8) World Financial Center 1997 10,000 250 2012
New York, New York
The Stage Deli Forum Shops 1997 5,000 200 2008
Las Vegas, Nevada
Red South Street Seaport 1998 7,000 150(150) 2013
New York, New York
4
Seating
Capacity(2)
Year Restaurant Size Indoor- Lease
Name Location Opened(1) (Square Feet) (Outdoor) Expiration(3)
- ---- -------- --------- -------------- ------------- ------------
Thunder Grill Union Station 1999 10,000 500 2019
Washington, D.C.
Venetian Food Court Venetian Casino Resort 1999 5,000 300(*) 2014
Las Vegas, Nevada
Tsunami Grill Venetian Casino Resort 1999 13,000 300 2019
Las Vegas, Nevada
Lutece Venetian Casino Resort 1999 6,400 90(90) 2019
Las Vegas, Nevada
Venus Venetian Casino Resort 2001 9,700 250 2019
Las Vegas, Nevada
V-Bar Venetian Casino Resort 2000 3,000 100 2015
Las Vegas, Nevada
The Saloon Neonopolis Center 2002 6,000 200 2014
at Fremont Street
Las Vegas, Nevada
- ---------------
(1) Restaurants are, from time to time, renovated and/or renamed. "Year
Opened" refers to the year in which the Company or an affiliated
predecessor of the Company first opened, acquired or began managing a
restaurant at the applicable location, notwithstanding that the
restaurant may have been renovated and/or renamed since that date.
(2) Seating capacity refers to the seating capacity of the indoor part of a
restaurant available for dining in all seasons and weather conditions.
Outdoor seating capacity, if applicable, is set forth in parentheses and
refers to the seating capacity of terraces and sidewalk cafes which are
available for dining only in the warm seasons and then only in clement
weather.
(3) Assumes the exercise of all available lease renewal options.
(4) Restaurant owned by a third party and managed by the Company. Management
fees earned by the Company are based on a percentage of cash flow of the
restaurant.
(5) The Company owns a 19% interest in the partnership that owns El Rio
Grande.
(6) Includes two five-year renewal options exercisable by the Company if
certain sales goals are achieved during the two year period prior to the
exercise of the renewal option. Under the America lease, the sales goal
is $6.0 million. Under the Gallagher's Steakhouse lease the sales goal is
$3.0 million. Under the lease for Gonzalez y Gonzalez and the Village
Eateries, the combined sales goal is $10.0 million. Each of the
restaurants is currently operating at a level substantially in excess of
the minimum sales level required to exercise the renewal option for each
respective restaurant.
5
(7) The Company operates eight small food court restaurants in the Villages
Eateries food court at the New York-New York Hotel & Casino. The Company
also operates that hotel's room service, banquet facilities and employee
cafeteria.
(8) The restaurant experienced damage in the attack on the World Trade Center
on September 11, 2001. In addition, substantial damage was sustained by
the World Financial Center in which the restaurant is located. The
restaurant closed on September 11, 2001 and reopened in early December
2002.
(*) Represents common area seating.
Restaurant Expansion
In fiscal 2002, the Company opened The Saloon at the new Neonopolis
Center at Fremont Street in downtown Las Vegas, Nevada. The Company received a
construction and pre-opening expense allowance from the landlord. The Saloon was
opened within the limits of that allowance.
The opening of a new restaurant is invariably accompanied by
substantial pre-opening expenses and early operating losses associated with the
training of personnel, excess kitchen costs, costs of supervision and other
expenses during the pre-opening period and during a post-opening "shake out"
period until operations can be considered to be functioning normally. The amount
of such pre-opening expenses and early operating losses can generally be
expected to depend upon the size and complexity of the facility being opened.
The Company incurred no pre-opening expenses or early operating losses in fiscal
2002. The Company incurred pre-opening expenses and early operating losses of
approximately $100,000 in fiscal 2001 and $2,393,000 in fiscal 2000.
The Company's restaurants generally do not achieve substantial
increases from year to year in revenue, which the Company considers to be
typical of the restaurant industry. To achieve significant increases in revenue
or to replace revenue of restaurants which lose customer favor or which close
because of lease expirations or other reasons, the Company would have to open
additional restaurant facilities or expand existing restaurants. There can be no
assurance that a restaurant will be successful after it is opened, particularly
since in many instances the Company does not operate its new restaurants under a
trade name currently used by the Company, thereby requiring new restaurants to
establish their own identity.
The Company is not currently committed to any other projects. The
Company may take advantage of opportunities it considers to be favorable, when
they occur, depending upon the availability of financing and other factors.
Recent Restaurant Dispositions and Charges
In January 2001, the Company closed its America restaurant in Tyson's
Corner, McLean, Virginia. The Company's efforts to sell this restaurant had been
unsuccessful. The Company continuously assessed the carrying value of this
restaurant in accordance with SFAS No. 121, Accounting for the Impairment of
Long-Lived Assets To Be Disposed Of, and determined that the restaurant's value
was impaired based upon the future undiscounted anticipated cash flows.
Accordingly, the Company recorded an impairment charge of $811,000 for the year
ended September 30, 2000 to write off the net book value of the furniture,
fixtures and equipment at September 30, 2000, which were deemed to have no
disposal value. For the years ended September 29, 2001 and September 30, 2000,
the restaurant had a pre-tax loss of $30,000 and $1,475,000 respectively.
6
The Company was a partner with a 50% interest in a partnership that was
formed to develop and construct four restaurants at a large theatre development
in Southfield, Michigan. In March 2000, the Company withdrew from the project
and incurred charges during fiscal 2000 of $4,988,000 from the write-off of
advances for construction costs and working capital needs on the project. In
fiscal 2001, the Company recorded a charge of $150,000 due to a partial
write-off of a note which the Company collected in March 2001. The note was
issued in March 2000 when the Company withdrew from the Southfield, Michigan
project.
In fiscal 2002 the Company determined that its restaurant and food
court operations at the Aladdin in Las Vegas, Nevada were significantly impaired
by the events of September 11, 2001, Aladdin's bankruptcy on September 28, 2001
and a general decline in tourism and economic conditions. In light of the
declining sales and Aladdin's bankruptcy, the Company negotiated a termination
of the lease, which related to both the food court and Fat Anthony's at the
Aladdin. The Company abandoned the space as of the close of business on
September 23, 2002. The Company terminated the lease effective as of October 6,
2002, and has no further liabilities under the lease. In addition, certain of
the Company's equipment and trade fixtures at the Aladdin were sold for a total
price of $240,000, in October 2002. The Company recorded an impairment charge
of $10,045,000 in fiscal 2001 related to the Aladdin.
Restaurant Management
Each restaurant is managed by its own manager and has its own chef.
Food products and other supplies are purchased primarily from various
unaffiliated suppliers, in most cases by Company headquarters' personnel. The
Company's Columbus Bakery supplies bakery products to most of the Company's New
York City restaurants in addition to operating a retail bakery. Each of the
Company's restaurants has two or more assistant managers and sous chefs
(assistant chefs). The executive chef department at Company headquarters designs
menus and supervises the kitchens. Financial and management control is
maintained at the corporate level through the use of an automated data
processing system that includes centralized accounting and reporting. The
Company has developed its own proprietary software which processes information
input daily at the Company's restaurants.
Employees
At December 12, 2002, the Company employed 1,959 persons (including
employees at managed facilities), 1,410 of whom were full-time employees, 549 of
whom were part-time employees 32 of whom were headquarters personnel, 192 of
whom were restaurant management personnel, 575 of whom were kitchen personnel
and 1,160 of whom were restaurant service personnel. A number of the Company's
restaurant service personnel are employed on a part-time basis. Changes in
minimum wage levels may affect the labor costs of the Company and the restaurant
industry generally because a large percentage of restaurant personnel are paid
at or slightly above the minimum wage. With the exception of some of the
employees at Lutece in New York, the Company's employees are not covered by a
collective bargaining agreement.
The 1,959 total number of persons employed by the Company compares with
2,595 total number of persons employed by the Company prior to the September 11,
2001 attacks on the World Trade Center and the Pentagon, and 2,070 total number
of persons employed by the Company in fiscal 2001 after such attacks. See
"Events of September 11, 2001 and General Decline in Tourism" below and "Item 7
- - Management's Discussion and Analysis of Financial Condition and Results of
Operations."
7
Government Regulation
The Company is subject to various Federal, state and local laws and
regulations affecting its business, including a variety of regulatory provisions
relating to the wholesomeness of food, sanitation, health, safety and licensing
in the sale of alcoholic beverages. A number of the Company's restaurants have
open or enclosed outdoor cafes which require the approval of, or licensing by, a
number of governmental agencies. The suspension by any regulatory agency of the
food service or the liquor license of any of the Company's restaurants would
have a material adverse effect upon the affected restaurant and, depending upon
the restaurant affected, could adversely affect the Company as a whole.
The New York State Liquor Authority must approve any transaction in
which a shareholder of the Company increases his holdings to 10% or more of the
outstanding capital stock of the Company and any transaction involving 10% or
more of the outstanding capital stock of the Company.
Seasonal Nature Of Business
The Company's business is highly seasonal. The second quarter of the
Company's fiscal year, consisting of the non-holiday portion of the cold weather
season in New York and Washington (January, February and March), is the poorest
performing quarter. The Company achieves its best results during the warm
weather, attributable to the Company's extensive outdoor dining availability,
particularly at Bryant Park in New York and Sequoia in Washington, D.C. (the
Company's largest restaurants) and the Company's outdoor cafes. The Company's
facilities in Las Vegas generally operate on a more consistent basis through the
year.
Events of September 11, 2001 and General Decline in Tourism
The terrorist attacks on the World Trade Center in New York and the
Pentagon in Washington, D.C. on September 11, 2001 have had a material adverse
effect on the Company's revenues. As a result of the attacks, one Company
restaurant, The Grill Room, located at 2 World Financial Center, which is
adjacent to the World Trade Center, experienced some damage. The Grill Room was
closed from September 11, 2001 and reopened in early December 2002.
The Company's restaurants in New York, Las Vegas, Washington D.C. and
Florida benefit from tourist traffic. Though the Las Vegas market has shown
resiliency, the sluggish economy and the lingering effects of September 11, 2001
have had an adverse effect on the Company's restaurants. Recovery depends upon a
general improvement in economic conditions and the public's willingness and
inclination to resume vacation and convention travel.
Forward Looking Statements
This report contains forward-looking statements that involve risks and
uncertainties. Discussions containing such forward-looking statements may be
found in the material set forth under "Item 1. Business" and "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations" as well as throughout this report generally. The Company's actual
results could differ materially from those anticipated in these forward-looking
statements as a result of certain factors, including those discussed below.
The restaurant business is intensely competitive and involves an
extremely high degree of risk. The Company believes that a large number of new
restaurants open each year and that a significant number of them do not succeed.
Even successful restaurants can rapidly lose popularity due to changes in
8
consumer tastes, turnover in personnel, the opening of competitive
restaurants, unfavorable reviews and other factors. There can be no assurance
that the Company's existing restaurants will retain such patronage as they
currently enjoy or that new restaurants opened by the Company will be
successful. There is active competition for competent chefs and management
personnel and intense competition among major restaurateurs and food service
companies for the larger, unique sites suitable for restaurants.
To achieve significant increases in revenue or to replace revenue of
restaurants which experience declining popularity or which close because of
lease expirations or other reasons, the Company would have to open additional
restaurant facilities. The acquisition or construction of new restaurants
requires significant capital resources. New large-scale projects that have been
the focus of the Company's efforts in recent years would likely require
additional financing. If the Company were to identify a favorable restaurant
opportunity, there is no assurance that the required financing would be
available.
Item 2. Properties
The Company's restaurant facilities and the Company's executive offices
are occupied under leases. Most of the Company's restaurant leases provide for
the payment of base rents plus real estate taxes, insurance and other expenses
and, in certain instances, for the payment of a percentage of the Company's
sales at such facility. These leases (including leases for managed restaurants)
have terms (including any available renewal options) expiring as follows:
Years Lease Number of
Terms Expire Facilities
------------ -----------
2002-2005 1
2006-2010 10
2011-2015 7
2016-2020 9
2021-2025 2
2026-2030 1
The Company's executive, administrative and clerical offices, located
in approximately 8,500 square feet of office space at 85 Fifth Avenue, New York,
New York, are occupied under a lease which expires in October 2008, including a
five-year renewal option. The Company terminated its lease for office space
related to its Washington, D.C. catering operations as of December 31, 2002, and
anticipates finding alternative space.
For information concerning the Company's future minimum rental
commitments under non-cancelable operating leases, see Note 8 of Notes to
Consolidated Financial Statements.
See also "Item I. Business - Overview" for a list of restaurant
properties.
Item 3. Legal Proceedings
In the ordinary course of its business, the Company is a party to
various lawsuits arising from accidents at its restaurants and workers'
compensation claims, which are generally handled by the Company's insurance
carriers.
9
The employment by the Company of management personnel, waiters,
waitresses and kitchen staff at a number of different restaurants has resulted
in the institution, from time to time, of litigation alleging violation by the
Company of employment discrimination laws. The Company does not believe that any
of such suits will have a materially adverse effect upon the Company, its
financial condition or operations.
Several unfair labor practice charges were filed against the Company in
1997 with the National Labor Relations Board (NLRB) with respect to the
Company's Las Vegas subsidiary. The charges were heard in October 1997. At issue
was whether the Company unlawfully terminated nine employees and disciplined six
other employees allegedly in retaliation for their union activities. An
Administrative Law Judge (ALJ) found that six employees were terminated
unlawfully, three were discharged for valid reasons, four employees were
disciplined lawfully and two employees were disciplined unlawfully. On appeal,
the NLRB found that the Company lawfully disciplined five employees, and
unlawfully disciplined one employee. The Company is appealing the adverse
rulings of the NLRB to the D.C. Circuit Court of Appeals. The Company does not
believe that an adverse outcome in this proceeding will have a material adverse
effect upon the Company's financial condition or operations.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Executive Officers of the Registrant
The following table sets forth the names and ages of executive officers
of the Company and all offices held by each person:
Name Age Positions and Offices
---- --- ---------------------
Michael Weinstein 59 President and Chief Executive Officer
Vincent Pascal 59 Senior Vice President and Secretary
Robert Towers 55 Executive Vice President, Chief
Operating Officer and Treasurer
Paul Gordon 51 Senior Vice President
Robert Stewart 46 Chief Financial Officer
Each executive officer of the Company serves at the pleasure of the
Board of Directors and until his successor is duly elected and qualifies.
Michael Weinstein has been the President and a director of the Company
since its inception in January 1983. During the past five years, Mr. Weinstein
has been an officer, director and 25% shareholder of Easy Diners, Inc., RSWB
Corp. and BSWR Corp. (since 1998). Mr. Weinstein is the owner of 24% of the
membership interests in each of Dockeast, LLC and Dockwest, LLC. These companies
operate four restaurants in New York City, and none of these companies is a
parent, subsidiary or other affiliate of the Company. Mr. Weinstein spends
substantially all of his business time on Company-related matters.
Vincent Pascal was elected Vice President, Assistant Secretary and a
director of the Company in October 1985. Mr. Pascal became Secretary of the
Company in January 1994. Mr. Pascal became a Senior Vice President in 2001.
10
Robert Towers has been employed by the Company since November 1983 and
was elected Vice President, Treasurer and a director in March 1987. Mr. Towers
became an Executive Vice President and Chief Operating Officer in 2001.
Paul Gordon has been employed by the Company since 1983 and was elected
as a director in November 1996 and a Senior Vice President in 2001. Mr. Gordon
is the manager of the Company's Las Vegas operations. Prior to assuming that
role in 1996, Mr. Gordon was the manager of the Company's operations in
Washington, D.C. since 1989.
Robert Stewart has been employed by the Company since June 2002 and was
elected Chief Financial Officer effective as of June 24, 2002. For the three
years prior to joining the Company, Mr. Stewart was a Chief Financial Officer
and Executive Vice President at Fortis Capital Holdings. For eleven years prior
to joining Fortis Capital Holdings, Mr. Stewart held senior financial and audit
positions in Skandinaviska Enskilda Banken in their New York, London and
Stockholm offices.
11
PART II
Item 5. Market For Registrant's Common Equity and
Related Stockholder Matters
Market Information
The Company's Common Stock, $.01 par value, is traded in the
over-the-counter market on the Nasdaq National Market under the symbol "ARKR."
The high and low sale prices for the Common Stock from October 3, 2000 through
September 28, 2002 are as follows:
Calendar 2000 High Low
------------- ---- ---
Fourth Quarter $ 8.50 $ 5.31
Calendar 2001
-------------
First Quarter 7.75 5.06
Second Quarter 10.37 6.00
Third Quarter 10.10 5.90
Fourth Quarter 10.00 6.75
Calendar 2002
-------------
First Quarter 8.00 6.10
Second Quarter 8.15 6.41
Third Quarter 8.49 6.60
Dividends
The Company has not paid any cash dividends since its inception and
does not intend to pay dividends in the foreseeable future.
Number of Shareholders
As of December 20, 2002, there were 70 holders of record of the
Company's Common Stock, $.01 par value.
-12-
Item 6. Selected Consolidated Financial Data
The following table sets forth certain financial data for the fiscal
years ended in 1998 through 2002. This information should be read in conjunction
with the Company's Consolidated Financial Statements and the notes thereto
beginning at page F-1.
(in thousands, except per share data)
Years Ended
September 28, September 29, September 30, October 2, October 3,
2002 2001 2000 1999 1998
(a) (b)
OPERATING DATA:
Total revenue $ 115,480 $ 127,536 $ 119,866 $111,804 $ 118,698
Cost and expenses (109,183) (135,591) (123,729) (104,836) (110,949)
Operating income (loss) 6,297 (8,055) (3,863) 6,968 7,749
Other income (expense), net (649) (2,135) (1,577) 103 (69)
Income (loss) before provision for
income taxes and cumulative
effect of accounting change 5,648 (10,190) (5,440) 7,071 7,680
Provision (benefit) for income taxes 1,419 (3,342) (1,906) 2,576 3,068
Income (loss) before cumulative
effect on accounting change 4,229 (6,848) (3,534) 4,495 4,612
Cumulative effect of accounting
charge, net - - 189 - -
NET INCOME (LOSS) 4,229 (6,848) (3,723) 4,495 4,612
NET INCOME (LOSS) PER SHARE:
Basic $ 1.33 $ (2.15) $ (1.17) $ 1.30 $ 1.21
Diluted $ 1.32 $ (2.15) $ (1.17) $ 1.29 $ 1.20
Weighted average number of shares
Basic 3,181 3,181 3,186 3,461 3,826
Diluted 3,206 3,181 3,186 3,476 3,852
BALANCE SHEET DATA
(end of period):
Total assets 47,960 53,091 66,297 46,709 43,505
Working capital (deficit) (7,990) (6,569) (5,640) (3,714) (1,260)
Long-term debt 9,547 21,700 24,447 6,683 4,405
Shareholders' equity 21,446 17,173 24,065 28,843 28,521
Shareholders' equity per share 6.74 5.40 7.55 8.33 7.45
Facilities in operations, end of year,
including managed 41 47 49 42 42
13
(a) Fiscal 2001 income was adversely affected by an asset impairment
charge of $10,045,000 related to the Aladdin operations and a charge
of $935,000 due to the cancellation of a development project.
(b) Fiscal 2000 income was adversely affected by an asset impairment
charge for a closed restaurant of $811,000, expenses of $280,000 from
the sale of a restaurant and a $1,300,000 charge associated with a
wage and hour lawsuit. Fiscal 2000 was also adversely affected by
charges of $4,988,000 from the write-off of advances and working
capital needs related to a project the Company withdrew from.
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Accounting period
The Company's fiscal year ends on the Saturday nearest September 30.
The fiscal years ended September 28, 2002, September 29, 2001 and September 30,
2000 each included 52 weeks.
Revenues
Total revenues at restaurants owned by the Company decreased by 9.4%
from fiscal 2001 to fiscal 2002 and increased by 6.4% from fiscal 2000 to fiscal
2001. Of the $12,056,000 decrease in revenues from fiscal 2001 to fiscal 2002,
$3,282,000 is attributable to the year long closure of the Grill Room restaurant
located in 2 World Financial Center, an office building adjacent to the World
Trade Center site. This restaurant was damaged in the September 11, 2001 attack
and reopened in early fiscal 2003. A $256,000 increase in sales is attributable
to the opening of the Saloon at the Neonopolis Center in downtown Las Vegas.
Same store sales decreased 6.7% or $8,262,000, on a Company-wide basis
from fiscal 2001 to fiscal 2002. The decrease in same store sales was 3.3% in
Las Vegas, 8.1% in New York and 13.7% in Washington D.C. Such decreases were
principally due to a decrease in customer counts. The change in menu prices did
not significantly affect revenues. The Company believes its fiscal 2002 revenues
compared to fiscal 2001 were adversely effected by the terrorist attacks on
September 11th, the residual effects on tourism and the sluggish economy. While
Las Vegas has rebounded considerably in the past year, New York and Washington
continue to experience soft sales.
During the fourth quarter of 2002 the Company abandoned its restaurant
and food court operations at the Desert Passage, the retail complex at the
Aladdin Resort & Casino in Las Vegas. A one-time pretax charge of $10,045,000
was taken in fiscal 2001 as a result of Company's determination that such
operations had become significantly impaired. During fiscal 2002 sales decreased
42.9% compared to fiscal 2001, resulting in the Company's decision to abandon
these operations. If this decrease is excluded from same store Las Vegas sales,
the Company's remaining operations in Las Vegas experienced a sales increase of
$190,000 during fiscal 2002.
Of the $7,670,000 increase in revenues from fiscal 2000 to fiscal 2001,
$9,370,000 is attributable to sales at operations which were either opened in
fiscal 2001, or did not operate for the full comparable period the previous year
(The Venetian concepts - Lutece, Tsunami, and four food court outlets, the
Aladdin concepts - Fat Anthony's and the Alakazam Food Court, and Jack Rose in
New York). Revenues were negatively affected by $963,000 due to the closure of a
restaurant, America in McLean, Virginia. Same store sales decreased by 0.6% or
$612,000 from fiscal 2000 to fiscal 2001.
14
Other operating income, which consists of the sale of merchandise at
various restaurants and management fee income, was $373,000 in fiscal 2002,
$529,000 in fiscal 2001 and $654,000 in fiscal 2000.
Costs and Expenses
Food and beverage cost of sales as a percentage of total revenue was
24.9% in fiscal 2002, 25.5% in fiscal 2001 and 25.9% in fiscal 2000.
Total costs and expenses decreased by $26,408,000, 19.5% from fiscal
2001 to fiscal 2002. The main reasons for this decrease in total costs and
expenses include the reduction in payroll expenses of $7,673,000 from fiscal
2001 to fiscal 2002 as a result of the Company's response to the events of
September 11, 2001 and the continued weakened economy. Food and beverage costs
decreased $3,755,000 resulting from the decrease in food and beverage sales of
$11,900,000. Additionally, during fiscal 2001, total costs and expenses were
adversely affected by an asset impairment charge of $10,045,000 associated with
the write down of the Company's Desert Passage restaurant and food court
operations. Total costs and expenses were also impacted in fiscal 2001 by a
charge of $935,000 due to the cancellation of a development project. During
fiscal 2000 total costs and expenses were adversely affected by an impairment
charge of $811,000 associated with the anticipated sale of a restaurant (America
in McLean, Virginia), expenses of $280,000 from the sale of a managed restaurant
(Arlo) and a $1,300,000 charge associated with a wage and hour lawsuit. Also
during fiscal 2000, the Company withdrew from a project, in which the Company
had a 50% interest, to develop and construct four restaurants at a large theatre
development in Southfield, Michigan. Charges of $4,988,000 were taken from the
write-off of advances for construction costs and working capital needs on the
project.
Payroll expenses as a percentage of total revenues decreased to 32.4%
for fiscal 2002 compared to 35.4% for fiscal 2001 and 35.9% for fiscal 2000.
Payroll expense was $37,412,000, $45,085,000 and $43,063,000 in fiscal 2002,
2001 and 2000, respectively. The Company aggressively adapted its cost structure
in response to lower sales expectations following September 11th and continues
to review its cost structure and make adjustments where appropriate. Head count
stood at 1,959 as of year end 2002 compared to 2,070 and 2,460 at year-end 2001
and 2000 respectively. Severance pay to key personnel was approximately $250,000
during fiscal 2002.
No pre-opening expenses and early operating losses were incurred during
fiscal 2002 as the Company received a construction and operating allowance from
the landlord for the Saloon at the Neonopolis Center at Freemont Street in
downtown Las Vegas, the one restaurant opened in fiscal 2002. The Company
incurred pre-opening and early operating losses at newly opened restaurants of
approximately $100,000 in fiscal 2001 and $2,393,000 in fiscal 2000. The fiscal
2000 expenses and losses were from opening restaurants and food court operations
within two Las Vegas casinos (Lutece and Tsunami in the Venetian along with four
food court outlets; and Fat Anthony's and the food court outlets in the
Aladdin). The Company also converted B. Smith's New York, an existing restaurant
in New York City, to Jack Rose. The Company typically incurs significant
pre-opening expenses in connection with its new restaurants which are expensed
as incurred. Furthermore, it is not uncommon that such restaurants experience
operating losses during the early months of operation.
General and administrative expenses, as a percentage of total revenue,
were 5.7% in fiscal 2002, 5.5% in fiscal 2001 and 5.9% in fiscal 2000. General
and administrative expenses were adversely impacted by a $370,000 increase in
casualty insurance costs during fiscal 2002. General and administrative expenses
in fiscal 2001 were impacted by $400,000 in legal expenses incurred in
connection with a potential transaction. During fiscal 2000, general and
administrative expenses were
15
impacted due to costs associated with the expansion of the Company's corporate
sales department, travel expenditures associated with the new openings in Las
Vegas and legal expenditures from the wage and hour lawsuit.
The Company managed one restaurant owned by others (El Rio Grande) at
September 28, 2002 and September 29, 2001 while the Company managed four
restaurants owned by others (El Rio Grande in Manhattan, and the Marketplace
Cafe, the Marketplace Grill, and the Brewskeller Pub in Boston, Massachusetts)
at September 30, 2000. Sales of these restaurant facilities, which are not
included in consolidated sales, were $2,973,000 in fiscal 2002, $4,380,000 in
fiscal 2001 and $8,867,000 in fiscal 2000. The decrease in sales of managed
operations is principally due to the expiration of the management agreement for
the three Boston restaurants. The management agreement expired on December 31,
2000 and was not renewed. The contribution of these restaurants to management
fee income was $0 in fiscal 2002, $134,000 in fiscal 2001 and $278,000 in fiscal
2000.
Interest expense was $1,212,000 in fiscal 2002, $2,446,000 in fiscal
2001 and $2,007,000 in fiscal 2000. The significant decrease from fiscal 2001 to
fiscal 2002 is due to lower outstanding borrowings on the Company's credit
facility and the benefit from rate decreases in the prime-borrowing rate.
Interest income was $133,000 in fiscal 2002, $150,000 in fiscal 2001 and
$172,000 in fiscal 2000. Other income, which generally consists of purchasing
service fees and other income at various restaurants was $430,000, $161,000 and
$258,000 for fiscal 2002, 2001 and 2000, respectively.
Income Taxes
The provision for income taxes reflects Federal income taxes calculated
on a consolidated basis and state and local income taxes calculated by each New
York subsidiary on a non-consolidated basis. Most of the restaurants owned or
managed by the Company are owned or managed by a separate subsidiary.
For state and local income tax purposes, the losses incurred by a
subsidiary may only be used to offset that subsidiary's income, with the
exception of the restaurants operating in the District of Columbia. Accordingly,
the Company's overall effective tax rate has varied depending on the level of
losses incurred at individual subsidiaries. Due to losses incurred in both
fiscal 2001 and fiscal 2000 and the carry back of such losses, the Company
realized an overall tax benefit of 32.8% and of 35% of such losses in fiscal
2001 and fiscal 2000, respectively. During fiscal 2002 the Company abandoned its
restaurant and food court operations at the Desert Passage, the retail complex
at the Aladdin Resort & Casino in Las Vegas. In fiscal 2002, the Company was
able to utilize the deferred tax asset created in fiscal 2001, by the impairment
of these operations. The Company's effective tax rate for fiscal 2002 was 25.1%.
The Company's overall effective tax rate in the future will be affected
by factors such as the level of losses incurred at the Company's New York
facilities, which cannot be consolidated for state and local tax purposes,
pre-tax income earned outside of New York City and the utilization of state and
local net operating loss carry forwards. Nevada has no state income tax and
other states in which the Company operates have income tax rates substantially
lower in comparison to New York. In order to utilize more effectively tax loss
carry forwards at restaurants that were unprofitable, the Company has merged
certain profitable subsidiaries with certain loss subsidiaries.
The Revenue Reconciliation Act of 1993 provides tax credits to the
Company for FICA taxes paid by the Company on tip income of restaurant service
personnel. The net benefit to the Company was $741,000 in fiscal 2002, $489,000
in fiscal 2001 and $503,000 in fiscal 2000.
16
During fiscal 2002, the Company and the Internal Revenue Service
finalized the adjustments to the Company's Federal income tax returns for fiscal
years 1995 through 1998. The settlement did not have a material effect on the
Company's financial condition.
Liquidity and Sources of Capital
The Company's primary source of capital has been cash provided by
operations and funds available from its main bank, Bank Leumi USA. The Company
from time to time also utilizes equipment financing in connection with the
construction of a restaurant and seller financing in connection with the
acquisition of a restaurant. The Company utilizes capital primarily to fund the
cost of developing and opening new restaurants, acquiring existing restaurants
owned by others and remodeling existing restaurants owned by the Company.
The net cash used in investing activities in fiscal 2002 ($153,000) was
primarily used for the replacement of fixed assets at existing restaurants. The
net cash used in investing activities in fiscal 2001 ($1,891,000) and in fiscal
2000 ($25,244,000) was principally used for the Company's continued investment
in fixed assets associated with constructing new restaurants. In fiscal 2001 the
Company opened two bars at the Venetian in Las Vegas, Nevada (V-Bar and Venus).
In fiscal 2000 the Company opened two restaurants and four food court outlets in
the Venetian (Lutece, Tsunami and the food court outlets), and the Company
opened one restaurant and six food court outlets in the Aladdin in Las Vegas,
Nevada (Fat Anthony's and the Alakazam Food Court).
The net cash used in financing activities in fiscal 2002 ($8,072,000)
and fiscal 2001 ($5,618,000) was principally due to repayments of long-term debt
on the Company's main credit facility in excess of borrowings on such facility.
The net cash provided from financing activities in fiscal 2000 ($20,661,000) was
principally from borrowings on the Company's Revolving Credit Facility.
The Company had a working capital deficit of $7,990,000 at September
28, 2002 as compared to a working capital deficit of $6,569,000 at September 29,
2001. The restaurant business does not require the maintenance of significant
inventories or receivables; thus the Company is able to operate with negative
working capital.
The Company's Revolving Credit and Term Loan Facility (the "Facility")
with its main bank, Bank Leumi USA, included a $26,000,000 credit line to
finance the development and construction of new restaurants and for working
capital purposes at the Company's existing restaurants. The commitment also
included a $1,000,000 Letter of Credit Facility for use at the Company's
restaurants in lieu of lease security deposits. On July 1, 2002, the Facility
converted into a term loan in the amount of $17,890,000 payable in 36 monthly
installments of approximately $497,000. The loans bear interest at the prime
rate plus 1/2% and at September 28, 2002 and September 29, 2001, the interest
rate on the outstanding loans was 5.25% and 6.5%, respectively. The Company
generally is required to pay commissions of 1 1/2% per annum on outstanding
letters of credit.
The agreement contains certain financial covenants such as minimum cash
flow in relation to the Company's debt service requirements, ratio of debt to
equity, and the maintenance of minimum shareholders' equity. At September 29,
2001, the Company was not in compliance with several of the requirements of the
agreement principally due to the impairment charges incurred in connection with
its restaurant and food service operations at the Aladdin in Las Vegas, Nevada.
The Company received a waiver from the bank to cure the non-compliance. In
December 2001, the covenants were amended for forthcoming periods. The Company
violated a covenant related to a limitation on employee loans during
17
the year ended September 28, 2002. The Company received a waiver for such
covenant with which it was not in compliance at September 28, 2002 through
December 30, 2002.
Pursuant to an equipment financing facility with its main bank, the
Company borrowed $2,851,000 in January 1997 at an interest rate of 8.75% to
refinance the purchase of various restaurant equipment at the New York-New York
Hotel & Casino Resort. The note, which was payable in 60 equal monthly
installments through January 2002, is secured by such restaurant equipment. At
September 28, 2002 the Company had completely paid down this facility.
In April 2000, the Company borrowed $1,570,000 from its main bank at an
interest rate of 8.8% to refinance the purchase of various restaurant equipment
at the Venetian. The note which is payable in 60 equal monthly installments
through May 2005, is secured by such restaurant equipment. At September 28, 2002
the Company had $922,000 outstanding on this facility.
The Company entered into a sale and leaseback agreement with GE Capital
for $1,652,000 in November 2000 to refinance the purchase of various restaurant
equipment at its food and beverage facilities in a hotel and casino in Las
Vegas, Nevada. The lease bears interest at 8.65% per annum and is payable in 48
equal monthly installments of $31,785 until maturity in November 2004 at which
time the Company has an option to purchase the equipment for $519,440.
Alternatively, the Company can extend the lease for an additional 12 months at
the same monthly payment until maturity in November 2005 and repurchase the
equipment at such time for $165,242.
The Company originally accounted for this agreement as an operating
lease and did not record the assets or the lease liability in the financial
statements. During the year ended September 29, 2001, the Company recorded the
entire amount payable under the lease as a liability of $1,600,000 based on the
anticipated abandonment of the Aladdin operations. In 2002, the operations at
the Aladdin were abandoned and at September 28, 2002, $1,253,000 remains in
accrued expenses and other current liabilities representing future operating
lease payments.
Restaurant Expansion
In fiscal 2002 the Company opened one restaurant at the Neonopolis
Center at Freemont Street in downtown Las Vegas, Nevada (The Saloon). The
Company opened two bars (V-Bar and Venus) at the Venetian in Las Vegas, Nevada
in fiscal 2001. In fiscal 2000, the Company opened two restaurants (Tsunami and
Lutece) along with four food court outlets at the Venetian.
Critical Accounting Policies
The preparation of financial statements requires the application of
accounting policies which may require the Company to make estimates and
assumptions of future events. In the process of preparing its consolidated
financial statements, the Company estimates the appropriate carrying value of
certain assets and liabilities, which are not readily apparent from other
sources. The primary estimates underlying the Company's financial statements
include allowances for potential bad debts on accounts and notes receivable, the
useful lives and recoverability of its assets, such as property and intangibles,
fair values of financial instruments, the realizable value of its tax assets and
other matters. Management bases its estimates on certain assumptions, which they
believe are reasonable in the circumstances, and actual results could differ
from those estimates. Although management does not believe that any change in
those assumptions in the near term would have a material effect on the Company's
consolidated financial position or the results of operation, differences in
actual results could be material to the financial statements.
18
The Company's significant accounting policies are more fully described
in Note 1 to the Company's financials. Below are listed certain policies that
management believes are critical.
Fixed Assets - The Company annually assesses any impairment in value of
long-lived assets and certain identifiable intangibles to be held and used. The
Company evaluates the possibility of impairment by comparing anticipated
undiscounted cash flows to the carrying amount of the related long-lived assets.
If such cash flows are less than carrying value the Company then reduces the
asset to its fair value. Fair value is generally calculated using discounted
cash flows. Various factors such as sales growth and operating margins and
proceeds from a sale are part of this analysis. Future results could differ from
the Company's projections with a resulting adjustment to income in such period.
Deferred Income Tax Valuation Allowance - The Company provides such allowance
due to uncertainty that some of the deferred tax amounts may not be realized.
Certain items, such as state and local tax loss carry forwards, are dependent on
future earnings or the availability of tax strategies. Future results could
require an increase or decrease in the valuation allowance and a resulting
adjustment to income in such period.
Recent Developments
The Financial Accounting Standards Board has recently issued the
following accounting pronouncements:
SFAS No. 142, Goodwill and Other Intangible Assets, addresses financial
accounting and reporting for acquired goodwill and other intangible assets.
Under SFAS No. 142, goodwill and some intangible assets will no longer be
amortized, but rather reviewed for impairment on a periodic basis. Impairment
losses for goodwill and certain intangible assets that arise due to the initial
application of this Statement are to be reported as resulting from a change in
accounting principle. The provisions of SFAS No. 142 are effective for fiscal
years beginning after December 15, 2001 and are applied at the beginning of
the Company's fiscal year. The Company will adopt this standard in the first
quarter of fiscal year 2003. The Company is in the process of evaluating the
financial statement impact from adopting this standard. The Company had
$3,400,000 million of goodwill at September 28, 2002. Amortization expense for
the year ended September 28, 2002 was $364,000.
SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived
Assets, supercedes existing accounting literature dealing with impairment and
disposal of long-lived assets, including discontinued operations. It addresses
financial accounting and reporting for the impairment of long-lived assets and
for long-lived assets to be disposed of and expands current reporting for
discontinued operations to include disposals of a "component" of an entity that
has been disposed of or is classified as held for sale. The Company will adopt
this standard in the first quarter of fiscal year 2003. The Company does not
expect the adoption of this standard to have a material impact on the Company's
financial position or results of operations; however, the Company will be
required to separate the results of closed restaurants as discontinued
operations in the future.
SFAS No. 146, Accounting for Costs Associated with Exit or Disposal
Activities, was issued in July 2002. SFAS No. 146 replaces current accounting
literature and requires the recognition of costs associated with exit or
disposal activities when they are incurred rather than at the date of commitment
to an exit or disposal plan. The provisions of the Statement are effective for
exit or disposal activities that are initiated after December 31, 2002. The
Company does not anticipate that the adoption of this statement will have a
material effect on the Company's financial position or results of operations.
19
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The Company is exposed to market risk from changes in interest rates
with respect to its outstanding credit agreement with its main bank, Bank Leumi
USA. Outstanding loans under the agreement bear interest at prime plus one-half
percent, and such loans were converted on July 1, 2002 to a term loan payable
over three years. Based upon a $14,908,000 (the outstanding balance at September
28, 2002) term loan and a 100 basis point change in interest rates, interest
expense would change by $149,000 in the one year period beginning on September
29, 2002.
Item 8. Financial Statements and Supplementary Data
The Company's Consolidated Financial Statements are included in this
report immediately following Part IV.
Item 9. Changes in and Disagreements With
Accountants on Accounting and Financial Disclosure
None.
20
PART III
Item 10. Directors and Executive Officers of the Registrant
See Part I, Item 4. "Executive Officers of the Registrant." Other
information required by this item is incorporated by reference from the
Company's definitive proxy statement to be filed not later than January 26, 2003
with the Securities and Exchange Commission ("SEC") pursuant to Regulation 14A
of the General Rules and Regulations ("Regulation 14A") under the Securities
Exchange Act of 1934, as amended.
Item 11. Executive Compensation
The information required by this item is incorporated by reference from
the Company's definitive proxy statement to be filed with the SEC not later than
January 26, 2003 pursuant to Regulation 14A.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required by this item is incorporated by reference from
the Company's definitive proxy statement to be filed not later than January 26,
2003 with the SEC pursuant to Regulation 14A.
Item 13. Certain Relationships and Related Transactions
The information required by this item is incorporated by reference from
the Company's definitive proxy statement to be filed not later than January 26,
2003 with the SEC pursuant to Regulation 14A.
Item 14. Controls and Procedures
As of a date within 90 days prior to the date of this report, the
Company's Chief Executive Officer and Chief Financial Officer carried out an
evaluation of the effectiveness of the design and operation of the Company's
disclosure controls and procedures, as required by Exchange Act Rule 13a-14.
Based upon that evaluation, the Chief Executive Officer and Chief Financial
Officer concluded that the Company's disclosure controls and procedures are
effective in ensuring that material information about the Company and its
subsidiaries, including the material information required to be disclosed in the
Company's filings under the Securities Exchange Act of 1934, is recorded,
processed, summarized and communicated to the Chief Executive Officer and the
Chief Financial Officer as appropriate to allow timely decisions regarding
required disclosure.
There were no significant changes in the Company's internal controls or
in other factors that could significantly affect internal controls subsequent to
the date of the most recent evaluation performed by the Company's Chief
Executive Officer and Chief Financial Officer, including any corrective actions
with regard to significant deficiencies and material weaknesses.
-21-
PART IV
Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) (1) Financial Statements: Page
----
Independent Auditors' Report F-1
Consolidated Balance Sheets --
at September 28, 2002 and September 29, 2001 F-2
Consolidated Statements of Operations --
For each of the three fiscal years ended
September 28, 2002, September 29, 2001 and September 30, 2000 F-3
Consolidated Statements of Cash Flows --
For each of the three fiscal years ended
September 28, 2002, September 29, 2001 and September 30, 2000 F-4
Consolidated Statements of Shareholders' Equity --
For each of the three fiscal years ended
September 28, 2002, September 29, 2001 and September 30, 2000 F-5
Notes to Consolidated Financial Statements F-6
(2) Financial Statement Schedules
None
(3) Exhibits:
*3.1 Certificate of Incorporation of the Registrant, filed
with the Secretary of State of the State of New York on
January 4, 1983.
*3.2 Certificate of Amendment of the Certificate of
Incorporation of the Registrant filed with the Secretary
of State of the State of New York on October 11, 1985.
*3.3 Certificate of Amendment of the Certificate of
Incorporation of the Registrant filed with the Secretary
of State of the State of New York on July 21, 1988.
*3.4 Certificate of Amendment of the Certificate of
Incorporation of the Registrant filed with the Secretary
of State of the State of New York on May 13, 1997.
3.5 Certificate of Amendment of the Certificate of
Incorporation of the Registrant filed on April 24, 2002
incorporated by reference to Exhibit 3.5 to the
Registrant's Quarterly Report on Form 10-Q for the
quarterly period ended March 30, 2002 (the "Second
Quarter 2002 Form 10-Q").
3.6 By-Laws of the Registrant, incorporated by reference to
Exhibit 3.2 to the Registrant's Registration Statement on
Form S-18 filed with the Securities and Exchange
Commission on October 17, 1985.
-22-
10.1 Amended and Restated Redemption Agreement dated June 29,
1993 between the Registrant and Michael Weinstein,
incorporated by reference to Exhibit 10.1 to the
Registrant's Annual Report on Form 10-K for the fiscal
year ended October 2, 1999 ("1994 10-K").
10.2 Form of Indemnification Agreement entered into between
the Registrant and each of Michael Weinstein, Ernest
Bogen, Vincent Pascal, Robert Towers, Jay Galin, Robert
Stewart, Bruce R. Lewin, Paul Gordon and Donald D. Shack,
incorporated by reference to Exhibit 10.2 to the 1994
10-K.
10.3 Ark Restaurants Corp. Amended Stock Option Plan, incorporated
by reference to Exhibit 10.3 to the 1994 10-K.
10.4 Fourth Amended and Restated Credit Agreement dated as of
December 27, 1999 between the Company and Bank Leumi USA,
incorporated by reference to Exhibit 10.4 to the
Registrant's Annual Report on Form 10-K for the fiscal
year ended October 2, 1999.
10.5 Ark Restaurants Corp. 1996 Stock Option Plan, as amended,
incorporated by reference to the Registrant's Definitive
Proxy Statement pursuant to Section 14(a) of the
Securities Exchange Act of 1934 (Amendment No. 1) filed
on March 16, 2001.
10.6 Lease Agreement dated May 17, 1996 between New York-New
York Hotel, LLC, and Las Vegas America Corp.,
incorporated by reference to Exhibit 10.6 to the
Registrant's Annual Report on Form 10-K for the fiscal
year ended October 3, 1998 (the "1998 10-K").
10.7 Lease Agreement dated May 17, 1996 between New York-New
York Hotel, LLC, and Las Vegas Festival Food Corp.,
incorporated by reference to Exhibit 10.7 to the 1998
10-K.
10.8 Lease Agreement dated May 17, 1996 between New York-New
York Hotel, LLC, and Las Vegas Steakhouse Corp.,
incorporated by reference to Exhibit 10.8 to the 1998
10-K.
10.9 Amendment dated August 21, 2000 to the Fourth Amended and
Restated Credit Agreement dated as of December 27, 1999
between the Company and Bank Leumi USA, incorporated by
reference to Exhibit 10.9 to the Registrant's Annual
Report on Form 10-K for the fiscal year ended September
30, 2000 (the "2000 10-K").
10.10 Amendment dated November 21, 2000 to the Fourth Amended
and Restated Credit Agreement dated as of December 27,
1999 between the Company and Bank Leumi USA, incorporated
by reference to Exhibit 10.10 to the 2000 10-K.
10.11 Amendment dated November 1, 2001 to the Fourth Amended
and Restated Credit Agreement dated as of December 27,
1999 between the Company and Bank Leumi USA, incorporated
by reference to Exhibit 10.11 to the Registrant's Annual
Report on Form 10-K for the fiscal year ended September
29, 2001 (the "2001 10-K").
10.12 Amendment dated December 20, 2001 to the Fourth Amended
and Restated Credit Agreement dated as of December 27,
1999 between the Company and Bank Leumi USA, incorporated
by reference to Exhibit 10.11 of the 2001 10-K.
10.13 Amendment dated as of April 23, 2002 to the Fourth
Amended and Restated Credit Agreement dated as of
December 27, 1999 between the Company and Bank Leumi USA,
incorporated by reference to Exhibit 10.13 of the Second
Quarter 2002 Form 10-Q.
*21 Subsidiaries of the Registrant.
*23 Consent of Deloitte & Touche LLP.
-23-
*99.1 Certifications pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
- --------------
* Filed herewith.
(b) Reports on Form 8-K:
None.
-24-
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
Ark Restaurants Corp.
We have audited the accompanying consolidated balance sheets of Ark Restaurants
Corp. and subsidiaries (the "Company") as of September 28, 2002 and September
29, 2001, and the related consolidated statements of operations, shareholders'
equity and cash flows for each of the three fiscal years in the period ended
September 28, 2002. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Ark Restaurants Corp. and
subsidiaries as of September 28, 2002 and September 29, 2001, and the results of
their operations and their cash flows for each of the three fiscal years in the
period ended September 28, 2002, in conformity with accounting principles
generally accepted in the United States of America.
/s/ Deloitte & Touche, LLP
New York, New York
December 13, 2002
F-1
ARK RESTAURANTS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands)
- --------------------------------------------------------------------------------
September 28, September 29,
2002 2001
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 819 $ -
Accounts receivable 2,000 1,501
Employee receivables (net of reserves of $45 and $0 respectively) 1,045 788
Current portion of long-term receivables (Note 3) 164 203
Inventories 1,925 2,110
Deferred income taxes (Note 12) 293 278
Prepaid expenses and other current assets 779 655
Refundable and prepaid income taxes 957 1,119
------- -------
Total current assets 7,982 6,654
------- -------
LONG-TERM RECEIVABLES (Note 3) 904 1,082
FIXED ASSETS - At cost:
Leasehold improvements 33,542 33,699
Furniture, fixtures and equipment 28,320 27,972
Leasehold improvements in progress - 93
------- -------
61,862 61,764
Less accumulated depreciation and amortization 31,602 27,035
------- -------
30,260 34,729
------- -------
INTANGIBLE ASSETS - Net (Note 4) 3,782 4,175
DEFERRED INCOME TAXES (Note 12) 4,255 6,056
OTHER ASSETS (Note 5) 777 395
------- -------
$47,960 $53,091
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable - trade $ 3,332 $ 4,232
Accrued expenses and other current liabilities (Note 6) 6,356 6,744
Current maturities of long-term debt (Note 7) 6,284 2,247
------- -------
Total current liabilities 15,972 13,223
------- -------
LONG-TERM DEBT - Net of current maturities (Note 7) 9,547 21,700
OPERATING LEASE DEFERRED CREDIT (Notes 1 and 8) 995 995
COMMITMENTS AND CONTINGENCIES (Note 8) - -
SHAREHOLDERS' EQUITY (Notes 7, 9 and 10):
Common stock, par value $.01 per share - authorized, 10,000
shares; issued, 5,249 52 52
Additional paid-in capital 14,743 14,743
Retained earnings 15,718 11,489
------- -------
30,513 26,284
Less stock options receivables 716 760
Less treasury stock, 2,068 shares 8,351 8,351
------- -------
Total shareholders' equity 21,446 17,173
------- -------
$47,960 $53,091
======== =======
See notes to consolidated financial statements.
F-2
ARK RESTAURANTS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
In Thousands, Except Per Share Data)
- --------------------------------------------------------------------------------
Years Ended
-----------------------------------------------------
September 28, September 29, September 30,
2002 2001 2000
REVENUES:
Food and beverage sales $115,107 $127,007 $119,212
Other income 373 529 654
-------- -------- --------
TOTAL REVENUES 115,480 127,536 119,866
-------- -------- --------
COST AND EXPENSES:
Food and beverage cost of sales 28,794 32,549 31,016
Payroll expenses 37,412 45,085 43,063
Occupancy expenses 17,306 18,320 15,310
Other operating costs and expenses 13,951 16,499 16,545
General and administrative expenses 6,548 7,005 7,111
Depreciation and amortization 5,172 5,938 4,885
Asset impairement (Note 2) - 10,045 811
Joint venture losses - 150 4,988
-------- -------- --------
109,183 135,591 123,729
-------- -------- --------
OPERATING INCOME (LOSS) 6,297 (8,055) (3,863)
-------- -------- --------
OTHER (INCOME) EXPENSE:
Interest expense (Note 7) 1,212 2,446 2,007
Interest income (133) (150) (172)
Other income (Note 13) (430) (161) (258)
-------- -------- --------
649 2,135 1,577
-------- -------- --------
INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES 5,648 (10,190) (5,440)
PROVISION (BENEFIT) FOR INCOME TAXES (Note 12) 1,419 (3,342) (1,906)
-------- -------- --------
INCOME (LOSS) BEFORE CUMULATIVE EFFECT
OF ACCOUNTING CHANGE 4,229 (6,848) (3,534)
CUMULATIVE EFFECT OF ACCOUNTING CHANGE, Net - - 189
-------- -------- --------
NET INCOME (LOSS) $ 4,229 $ (6,848) $ (3,723)
======== ======== ========
NET INCOME (LOSS) PER SHARE - BASIC:
INCOME (LOSS) BEFORE CUMULATIVE EFFECT
OF ACCOUNTING CHANGE $ 1.33 $ (2.15) $ (1.11)
CUMULATIVE EFFECT OF ACCOUNTING CHANGE - - (0.06)
-------- -------- --------
NET INCOME (LOSS) $ 1.33 $ (2.15) $ (1.17)
======== ======== ========
NET INCOME (LOSS) PER SHARE - DILUTED:
INCOME (LOSS) BEFORE CUMULATIVE EFFECT
OF ACCOUNTING CHANGE $ 1.32 $ (2.15) $ (1.11)
CUMULATIVE EFFECT OF ACCOUNTING CHANGE - - (0.06)
-------- -------- --------
NET INCOME (LOSS) $ 1.32 $ (2.15) $ (1.17)
======== ======== ========
WEIGHTED AVERAGE NUMBER OF SHARES - BASIC 3,181 3,181 3,186
======== ======== ========
WEIGHTED AVERAGE NUMBER OF SHARES - DILUTED 3,206 3,181 3,186
======== ======== ========
See notes to consolidated financial statements.
F-3
ARK RESTAURANT CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
- --------------------------------------------------------------------------------
Years Ended
----------------------------------------------
September 28, September 29, September 30,
2002 2001 2000
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 4,229 $ (6,848) $ (3,723)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization of fixed assets 4,779 5,479 4,334
Amortization of intangibles 393 459 551
Gain on sale of restaurants (105) (209) (88)
Write-off of joint venture advances and investments -- 1,086 4,988
Impairment of assets held for sale -- 10,045 811
Write-off of accounts and notes receivable 165 209 280
Operating lease deferred credit -- (218) (109)
Deferred income taxes 1,786 (3,107) (1,670)
Changes in assets and liabilities:
Accounts receivable and employee receivables (756) 1,037 (1,202)
Inventories 185 23 (217)
Prepaid expenses and other
current assets (124) (308) (11)
Refundable and prepaid
income taxes 162 189 (1,307)
Other assets (382) (502) (450)
Accounts payable trade (900) (1,061) 1,476
Accrued income taxes -- -- (186)
Accrued expenses
and other current liabilities (388) 538 1,469
-------- -------- --------
Net cash provided by operating activities 9,044 6,812 4,946
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to fixed assets (704) (3,014) (22,263)
Proceeds from the disposal of fixed assets 394 -- --
Advances to joint venture -- -- (3,297)
Issuance of demand notes and long-term receivables (125) (98) (94)
Payments received on long-term receivables 282 1,221 410
-------- -------- --------
Net cash used in investing activities (153) (1,891) (25,244)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt 1,500 4,400 25,020
Principal payment on long-term debt (9,616) (9,974) (3,155)
Exercise of stock options -- -- 344
Payment (borrowings) under stock options receivables 44 (41) (49)
Principal payment on capital lease obligations -- -- (149)
Purchase of treasury stock -- (3) (1,350)
-------- -------- --------
Net cash (used in) provided by financing activities (8,072) (5,618) 20,661
-------- -------- --------
NET INCREASE (DECREASE) IN CASH AND
CASH AND CASH EQUIVALENTS 819 (697) 363
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD -- 697 334
-------- -------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 819 $ -- $ 697
======== ======== ========
SUPPLEMENTAL INFORMATION:
Cash payments for:
Interest $ 1,271 $ 2,446 $ 2,245
======== ======== ========
Income taxes $ 187 $ 852 $ 1,113
======== ======== ========
See notes to consolidated financial statements.
F-4
ARK RESTAURANTS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED SEPTEMBER 28, 2002, SEPTEMBER 29, 2001 AND SEPTEMBER 30, 2000
(In Thousands)
- --------------------------------------------------------------------------------
Common Stock Additional
----------------- Paid-In Retained Treasury
Shares Amount Capital Earnings Stock
BALANCE, OCTOBER 3, 1999 5,208 $ 52 $14,399 $22,060 $ (6,998)
Exercise of stock options 41 -- 328 -- --
Purchase of treasury stock -- -- -- -- (1,350)
Tax benefit on exercise of options -- -- 16 -- --
Net borrowings of stock option receivables -- -- -- -- --
Net loss -- -- -- (3,723) --
----- ----- ------- ------- --------
BALANCE, SEPTEMBER 30, 2000 5,249 52 14,743 18,337 (8,348)
Purchase of treasury stock -- -- -- -- (3)
Net borrowings of stock option receivables -- -- -- -- --
Net loss -- -- -- (6,848) --
----- ----- ------- ------- --------
BALANCE, SEPTEMBER 29, 2001 5,249 52 14,743 11,489 (8,351)
Net payment on stock options receivables -- -- -- -- --
Net income -- -- -- 4,229 --
----- ----- ------- ------- --------
BALANCE, SEPTEMBER 28, 2002 5,249 $ 52 $14,743 $15,718 $ (8,351)
===== ===== ======= ======= ========
Stock Total
Options Shareholders'
Receivable Equity
BALANCE, OCTOBER 3, 1999 $(670) $28,843
Exercise of stock options -- 328
Purchase of treasury stock -- (1,350)
Tax benefit on exercise of options -- 16
Net borrowings of stock option receivables (49) (49)
Net loss -- (3,723)
----- -------
BALANCE, SEPTEMBER 30, 2000 (719) 24,065
Purchase of treasury stock -- (3)
Net borrowings of stock option receivables (41) (41)
Net loss -- (6,848)
----- -------
BALANCE, SEPTEMBER 29, 2001 (760) 17,173
Net payment on stock options receivables 44 44
Net income -- 4,229
----- -------
BALANCE, SEPTEMBER 28, 2002 $(716) $21,446
===== =======
See notes to consolidated financial statements
F-5
ARK RESTAURANTS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 28, 2002, SEPTEMBER 29, 2001 AND SEPTEMBER 30, 2000
- --------------------------------------------------------------------------------
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Ark Restaurants Corp. and subsidiaries (the "Company") own and operates 26
restaurants, 12 fast food concepts, catering operations and wholesale and
retail bakeries. Twelve restaurants are located in New York City, nine in Las
Vegas, Nevada, four in Washington, D.C., and one in Islamorada, Florida. The
Las Vegas operations include three restaurants within the New York-New York
Hotel & Casino Resort and operation of the Resort's room service, banquet
facilities, employee dining room and eight food court concepts. Four
restaurants and bars are within the Venetian Casino Resort as well as four
food court concepts; one restaurant is within the Forum Shops at Caesar's
Shopping Center and one restaurant is in downtown Las Vegas at the Neonopolis
Center.
Accounting Period - The Company's fiscal year ends on the Saturday nearest
September 30. The fiscal years ended September 28, 2002, September 29, 2001,
and September 30, 2000, included 52 weeks.
Significant Estimates - In the process of preparing its consolidated
financial statements, the Company estimates the appropriate carrying value of
certain assets and liabilities which are not readily apparent from other
sources. The primary estimates underlying the Company's financial statements
include allowances for potential bad debts on accounts and notes receivable,
the useful lives and recoverability of its assets, such as property and
intangibles, fair values of financial instruments, the realizable value of
its tax assets and other matters. Management bases its estimates on certain
assumptions, which they believe are reasonable in the circumstances, and
while actual results could differ from those estimates, management does not
believe that any change in those assumptions in the near term would have a
material effect on the Company's consolidated financial position or the
results of operations.
Principles of Consolidation - The consolidated financial statements include
the accounts of the Company and its wholly owned subsidiaries. All
significant intercompany accounts and transactions have been eliminated in
consolidation. Investments in affiliated companies where the Company is able
to exercise significant influence over operating and financial policies even
though the Company holds 50% or less of the voting stock, are accounted for
under the equity method.
Cash Equivalents - Cash equivalents include instruments with original
maturities of three months or less.
Accounts Receivable - Accounts receivable generally represent normal business
receivables such as credit card receivables that are paid off in a short
period of time. See Notes 16 and 17 for a discussion of related party
receivables.
Inventories - Inventories are stated at the lower of cost (first-in,
first-out) or market, and consist of food and beverages, merchandise for sale
and other supplies.
Fixed Assets - Leasehold improvements and furniture, fixtures and equipment
are stated at cost. Depreciation of furniture, fixtures and equipment
(including equipment under capital leases) is computed using the
straight-line method over the estimated useful lives of the respective assets
(seven years). Amortization of improvements to leased properties is computed
using the straight-line method
F-6
based upon the initial term of the applicable lease or the estimated useful
life of the improvements, whichever is less, and ranges from 5 to 35 years.
The Company includes in leasehold improvements in progress restaurants that
are under construction. Once the projects have been completed the Company
will begin amortizing the assets. Start-up costs incurred during the
construction period of restaurants, including rental of premises, training
and payroll, are expensed as incurred.
The Company annually assesses impairment in value of long-lived assets and
certain identifiable intangibles to be held and used. For the year ended
September 28, 2002, no impairment charges were deemed necessary. For the year
ended September 29, 2001, an impairment charge of $10,045,000 was incurred on
the Company's restaurant operations at Desert Passage, the retail complex at
the Aladdin Resort & Casino in Las Vegas, Nevada (Note 2).
In January 2001, the Company closed its America restaurant in Tyson's Corner,
McLean, Virginia. The Company's efforts to sell this restaurant had been
unsuccessful. The Company continuously assessed the carrying value of this
restaurant in accordance with SFAS No. 121, Accounting for the Impairment of
Long-Lived Assets To Be Disposed Of, and determined that the restaurant's
value was impaired based upon the future undiscounted anticipated cash flows.
Accordingly, the Company recorded an impairment charge of $811,000 during the
year ended September 30, 2000, to write off the net book value of the
furniture, fixtures and equipment which were deemed to have no disposal
value. For the years ended September 29, 2001 and September 30, 2000, the
restaurant had a pre-tax loss of $30,000 and $1,475,000 respectively.
Intangible and Other Assets - Costs associated with acquiring leases and
subleases, principally purchased leasehold rights, have been capitalized and
are being amortized on the straight-line method based upon the initial terms
of the applicable lease agreements, which range from 10 to 21 years.
Goodwill recorded in connection with the acquisition of shares of the
Company's common stock from a former shareholder, as discussed in Note 4, is
being amortized over a period of 40 years. Goodwill arising from restaurant
acquisitions is being amortized over periods ranging from 10 to 15 years.
The Company adopted in the quarter ended January 1, 2000, Statement of
Position 98-5, Reporting on the Costs of Start-Up Activities, which requires
costs of start-up activities and organization costs to be expensed as
incurred. The Company had previously capitalized organization costs and then
amortized such costs over five years. The Company had net deferred
organization expenses of $300,000 in intangible assets as of October 2, 1999
and the write-off of such amount ($189,000 after taxes) is reported in the
fiscal year ended September 30, 2000 as a cumulative effect of a change in
accounting principle.
Covenants not to compete arising from restaurant acquisitions are amortized
over the contractual period of five years.
Certain legal and bank commitment fees incurred in connection with the
Company's Revolving Credit and Term Loan Facility, as discussed in Note 7,
were capitalized as deferred financing fees and are being amortized over four
years, the term of the facility.
Operating Lease Deferred Credit - Several of the Company's operating leases
contain predetermined increases in the rentals payable during the term of
such leases. For these leases, the aggregate rental expense over the lease
term is recognized on a straight-line basis over the lease term. The excess
of the
F-7
expense charged to operations in any year and amounts payable under the
leases during that year are recorded as a deferred credit. The deferred
credit subsequently reverses over the lease term (Note 8).
Occupancy Expenses - Occupancy expenses include rent, rent taxes, real estate
taxes, insurance and utility costs.
Income Per Share of Common Stock - Net income per share is computed in
accordance with Statement of Financial Accounting Standard ("SFAS") No. 128,
Earnings Per Share, and is calculated on the basis of the weighted average
number of common shares outstanding during each period plus the additional
dilutive effect of common stock equivalents. Common stock equivalents consist
of dilutive stock options.
Stock Options - The Company accounts for its stock options granted to
employees under the intrinsic value-based method for employee stock-based
compensation and provides pro forma disclosure of net income and earnings per
share as if the accounting provision of SFAS No.123 had been adopted. The
Company generally does not grant options to outsiders.
Future Impact of Recently Issued Accounting Standards - SFAS No. 142,
Goodwill and Other Intangible Assets, addresses financial accounting and
reporting for acquired goodwill and other intangible assets. Under SFAS No.
142, goodwill and some intangible assets will no longer be amortized, but
rather reviewed for impairment on a periodic basis. Impairment losses for
goodwill and certain intangible assets that arise due to the initial
application of this Statement are to be reported as resulting from a change
in accounting principle. The provisions of SFAS No. 142 are effective for
fiscal years beginning after December 15, 2001 and are applied at the
beginning of the Company's fiscal year. The Company will adopt this standard
in the first quarter of fiscal year 2003. The Company is in the process of
evaluating the financial statement impact from adopting this standard. The
Company had approximately $3,400,000 of unamortized goodwill at September 28,
2002. Amortization expense for the year ended September 28, 2002 was
$364,000.
SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets,
supercedes existing accounting literature dealing with impairment and
disposal of long-lived assets, including discontinued operations. It
addresses financial accounting and reporting for the impairment of long-lived
assets and for long-lived assets to be disposed of and expands current
reporting for discontinued operations to include disposals of a "component"
of an entity that has been disposed of or is classified as held for sale. The
Company will adopt this standard in the first quarter of fiscal year 2003.
The Company does not expect the adoption of this standard to have a material
impact on the Company's financial position or results of operations; however,
the Company will be required to separate the results of closed restaurants as
discontinued operations in the future.
SFAS No. 146, Accounting for Costs Associated with Exit or Disposal
Activities, was issued in July 2002. SFAS No. 146 replaces current accounting
literature and requires the recognition of costs associated with exit or
disposal activities when they are incurred rather than at the date of
commitment to an exit or disposal plan. The provisions of the Statement are
effective for exit or disposal activities that are initiated after December
31, 2002. The Company does not anticipate the adoption of this statement will
have a material effect on the Company's financial position or results of
operations.
Reclassifications - Certain reclassifications of prior year balances have
been made to conform with current year presentation. Stock option receivables
of $716,000 at September 28, 2002 and $760,000 at September 29, 2001 are
classified as a reduction to shareholders' equity in the current year and
were classified in accounts receivable in the prior year.
F-8
2. EFFECTS OF THE SEPTEMBER 11, 2001 TERRORIST ATTACKS
The terrorist attacks on the World Trade Center in New York and the Pentagon
in Washington D.C. on September 11, 2001 have had a material adverse effect
on the Company's revenue. As a result of the attacks, one Company restaurant,
The Grill Room, experienced some damage. The Grill Room, located at 2 World
Financial Center which is adjacent to the World Trade Center and which was
substantially damaged, was closed for all of fiscal 2002. The Grill Room
reopened in early December 2002. The Company has recorded $450,000 as a
reduction of other operating costs and expenses for the year ended September
28, 2002 for partial insurance recoveries of certain out of pocket costs and
business interruption losses incurred. Additional recoveries are expected in
the future as the assessment of the damages is finalized with the insurance
carrier.
The Company believes that its restaurant and food court operations at Desert
Passage which adjoins the Aladdin Casino Resort in Las Vegas, Nevada (the
"Aladdin") were significantly impaired by the events of September 11th. The
restaurant and food court operations experienced severe sales declines in the
aftermath of September 11th and the Aladdin declared bankruptcy on September
28, 2001. The Company determined that an impairment analysis under SFAS No.
121 needed to be performed.
Based upon the sum of the future undiscounted cash flows related to the
Company's long-lived assets at the Aladdin, the Company determined that
impairment had occurred. To estimate the fair value of such long-lived
assets, for determining the impairment amount, the Company used the expected
present value of the future cash flows. The Company projected continuing
negative operating cash flow for the foreseeable future with no value for
subletting or assigning the lease for the premises. Therefore, the Company
determined that there was no value to such long-lived assets. The Company had
an investment of $8,445,000 in leasehold improvements, and furniture,
fixtures and equipment. The Company believes that these assets would have
nominal, if any, value upon disposal. In addition, the estimated future
payments under the lease for kitchen equipment at the location totaled
$1,600,000. The Company recorded in the fiscal year ended September 29, 2001
an impairment charge of $8,445,000 for the net book value of the assets and
recorded an additional $1,600,000 of expense and liability for the future
lease payments, of which $1,253,000 remains in accrued in other current
liabilities at September 28, 2002. In September 2002, the Company abandoned
its restaurant and food court operations at the Aladdin.
F-9
3. LONG-TERM RECEIVABLES
Long-term receivables consist of the following:
(In Thousands)
September 28, September 29,
2002 2001
Note receivable, due March 2001 (a) $ - $ -
Note receivable secured by fixed assets and lease at a
restaurant sold by the Company, at 8% interest; due in
monthly installments through December 2006 (b) 337 401
Note receivable secured by fixed assets and lease at a
restaurant sold by the Company, at 7.5% interest; due in
monthly installments commencing May 2000
through December 2008 (c) 606 687
Note receivable secured by fixed assets and lease at a
restaurant sold by the Company, at 10.0% interest; due in
monthly installments through April 2004 (d) - -
Note receivable secured by fixed assets and lease at a
restaurant at 7.0% interest; due in monthly installments
through December 2007 (e) 125 176
Others - 21
------ ------
1,068 1,285
Less current portion 164 203
------ ------
$ 904 $1,082
====== ======
(a) In March 2000, the Company withdrew from a partnership that was formed
to develop and construct four restaurants at a large theatre
development in Southfield, Michigan. The Company was issued a
$1,000,000 note in consideration of its working capital advances to
the project. The Company collected $850,000 in March 2001 and recorded
a charge of $150,000 on the uncollected balance.
(b) In December 1996, the Company sold a restaurant for $900,000. Cash of
$50,000 was received on sale and the balance is due in installments
through December 2006.
(c) In October 1997, the Company sold a restaurant for $1,750,000, of
which $200,000 was paid in cash and the balance is due in monthly
installments under the terms of two notes bearing interest at a rate
of 7.5%. One note, with an initial principal balance of $400,000, was
being paid in 24 monthly installments of $19,000 through April 2000.
The second note, with an initial principal balance of $1,150,000, will
be paid in 104 monthly installments of $15,000 commencing May 2000 and
ending December 2008. At December 2008, the then outstanding balance
of $519,000 matures.
The Company recognized a gain on sale of approximately $0, $221,000,
and $88,000 in the fiscal years ended September 28, 2002, September
29, 2001, and September 30, 2000, respectively. Additional deferred
gains totaling $585,000 at September 28, 2002 could be recognized in
future periods as the notes are collected. The Company deferred
recognizing
F-10
this additional gain and recorded an allowance for possible
uncollectible note against the outstanding note. This uncertainty is
based on the significant length of time of this note (over 10 years)
and the substantial balance, which matures in December 2008
($519,000).
(d) In December 1998, the Company sold a restaurant for $500,000, of which
$250,000 was paid in cash and a note financed the balance of $250,000.
The note was due in monthly installments of $6,000, inclusive of
interest at 10%, from May 1999 through April 2004. The buyer defaulted
on the note during the fiscal year ended September 29, 2001 and
subsequently filed for bankruptcy. The Company recovered $12,000 and
wrote off the remaining balance of $209,000 in the year ended
September 29, 2001.
(e) In June 2000, the Company sold this restaurant for $438,000. Cash of
$188,000 was received on sale and the balance was due in installments
through June 2006. In February 2001, the buyer defaulted and the
Company took possession of this restaurant and sold it to another
party in June 2002. The total price was $270,000, cash of $145,000 was
received on sale and the balance is due in installments through
December 2007.
The Company recognized a gain on the sale of this restaurant of
$105,000, the net of funds received from the buyer and the outstanding
$165,000 note which was written down on the default.
The carrying value of the Company's long-term receivables approximates its
current aggregate fair value.
4. INTANGIBLE ASSETS
Intangible assets consist of the following:
(In Thousands)
September 28, September 29,
2002 2001
Goodwill (a) $6,223 $6,223
Purchased leasehold rights (b) 751 751
Noncompete agreements and other 790 790
------ ------
7,764 7,764
Less accumulated amortization 3,982 3,589
------ ------
$3,782 $4,175
====== ======
(a) In August 1985, certain subsidiaries of the Company acquired
approximately one-third of the then outstanding shares of common stock
(965,000 shares) from a former officer and director of the Company for
a purchase price of $3,000,000. The consolidated balance sheets
reflect the allocation of $2,946,000 to goodwill.
(b) Purchased leasehold rights arise from acquiring leases and subleases
of various restaurants.
5. OTHER ASSETS
Other assets consist of the following:
F-11
(In Thousands)
September 28, September 29,
2002 2001
Deposits $335 $277
Deferred financing fees 42 97
Investments in and advances to affiliates (a) - 21
Landlord receivable (b) 400 -
---- ----
$777 $395
==== ====
(a) The Company, through a wholly-owned subsidiary, became a general
partner with a 19% interest in a partnership which acquired on July 1,
1987 an existing Mexican food restaurant, El Rio Grande, in New York
City. Several related parties also participate as limited partners in
the partnership. The Company's equity in earnings of the limited
partnership was $0, $32,000 and $15,000 for the years ended September
28, 2002, September 29, 2001 and September 30, 2000, respectively.
The Company also manages El Rio Grande through another wholly-owned
subsidiary on behalf of the partnership. Management fee income
relating to these services was $30,000, $181,000 and $162,000 for the
years ended September 28, 2002, September 29, 2001 and September 30,
2000, respectively (Note 11).
The Company, through a wholly-owned subsidiary, was a partner with a
50% interest in a partnership to construct and develop four
restaurants at a large theatre development in Southfield, Michigan. In
March 2000, the Company withdrew from the partnership and incurred
losses totaling $4,988,000 on this project from the write-off of
advances for construction costs and working capital needs on the
project.
For the year ended September 29, 2001, the Company recorded a write
off in other operating expenses of $935,000 on the cancellation of a
development project.
(b) This balance represents certain costs paid on behalf of a landlord,
that under an agreement with the landlord will be used as a future
offset to contingent rent payments for certain Las Vegas restaurants.
6. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consist of the following:
(In Thousands)
September 28, September 29,
2002 2001
Sales tax payable $ 673 $ 669
Accrued wages and payroll related costs 1,508 931
Customer advance deposits 924 961
Accrued and other liabilities 1,998 2,583
Impairment accrual (a) 1,253 1,600
------ ------
$6,356 $6,744
====== ======
F-12
(a) During the year ended September 29, 2001, the Company recorded the
entire amount payable under an operating lease for restaurant
equipment for the Aladdin operations as a liability of $1,600,000
based on their anticipated abandonment. In 2002, the operations at the
Aladdin were abandoned (see Note 2).
7. LONG-TERM DEBT
Long-term debt consists of the following:
(In Thousands)
September 28, September 29,
2002 2001
Revolving Credit and Term Loan Facility with interest at the
prime rate, plus 1/2%, payable on June 30, 2002 (a) $14,908 $22,500
Notes issued in connection with refinancing of restaurant
equipment, at 8.75%, payable in monthly installments through
January 2002 (b) - 231
Notes issued in connection with refinancing of restaurant
equipment, at 8.80%, payable in monthly installments through
May 2005 (c) 923 1,216
------- -------
15,831 23,947
Less current maturities 6,284 2,247
------- -------
$ 9,547 $21,700
======= =======
(a) The Company's Revolving Credit and Term Loan Facility (the "Facility")
with its main bank (Bank Leumi USA), as amended in November 2001,
December 2001 and April 2002, included a $26,000,000 credit line to
finance the development and construction of new restaurants and for
working capital purposes at the Company's existing restaurants. On
July 1, 2002, the Facility converted into a term loan in the amount of
$17,890,000 payable in 36 monthly installments of approximately
$497,000. The loan bears interest at1/2% above the bank's prime rate
and at September 28, 2002 and September 29, 2001, the interest rate on
outstanding loans was 5.25% and 6.5% respectively. The Facility also
includes a $1,000,000 Letter of Credit Facility for use in lieu of
lease security deposits. The Company generally is required to pay
commissions of 1 1/2% per annum on outstanding letters of credit.
The Company's subsidiaries each guaranteed the obligations of the
Company under the foregoing facilities and granted security interests
in their respective assets as collateral for such guarantees. In
addition, the Company pledged stock of such subsidiaries as security
for obligations of the Company under such facilities.
The agreement includes restrictions relating to, among other things,
indebtedness for borrowed money, capital expenditures, mergers, sale
of assets, dividends and liens on the property of the Company. The
agreement also contains financial covenants such as minimum cash flow
in relation to the Company's debt service requirements, ratio of debt
to equity, and the maintenance of minimum shareholders' equity. The
Company violated a covenant related to a limitation on employee loans
during the year ended September 28, 2002. The Company received a
waiver
F-13
from the bank for the covenant it was not in compliance with, for
September 28, 2002 through December 30, 2002.
(b) In January 1997, the Company borrowed from its main bank, $2,851,000
to refinance the purchase of various restaurant equipment at its food
and beverage facilities in a hotel and casino in Las Vegas, Nevada.
The notes bore interest at 8.75% per annum and were payable in 60
equal monthly installments of $58,833 inclusive of interest, until
they matured in January 2002. The Company granted the bank a security
interest in such restaurant equipment. In connection with such
financing, the Company granted the bank the right to purchase 35,000
shares of the Company's common stock at the exercise price of $11.625
per share through December 2002. The fair value of the warrants was
estimated at the date of grant, credited to additional paid-in capital
and is being amortized over the life of the warrant. As of September
28, 2002, there were no exercises on any of the warrants.
(c) In April 2000, the Company borrowed from its main bank $1,570,000 to
refinance the purchase of various restaurant equipment at its food and
beverage facilities in a hotel and casino in Las Vegas, Nevada. The
notes bear interest at 8.80% per annum and are payable in 60 equal
monthly installments of $32,439 inclusive of interest, until maturity
in May 2005.
Required principal payments on long-term debt, with the conversion of
eligible borrowings described in (a) above are as follows:
(In Thousands)
Year Amount
2003 $ 6,284
2004 6,313
2005 3,234
-------
$15,831
=======
During the fiscal years ended September 28, 2002, September 29, 2001 and
September 30, 2000, interest expense was $1,212,000, $2,446,000 and
$2,245,000, respectively, of which $238,000 was capitalized during the fiscal
year ended September 30, 2000.
The carrying value of the Company's long-term debt approximates its current
aggregate fair value.
8. COMMITMENTS AND CONTINGENCIES
Leases - The Company leases its restaurants, bar facilities, and
administrative headquarters through its subsidiaries under terms expiring at
various dates through 2029. Most of the leases provide for the payment of
base rents plus real estate taxes, insurance and other expenses and, in
certain instances, for the payment of a percentage of the restaurants' sales
in excess of stipulated amounts at such facility.
As of September 28, 2002, future minimum lease payments, net of sublease
rentals, under noncancelable leases are as follows:
F-14
(In thousands)
Operating
Year Leases
2003 $ 7,821
2004 7,310
2005 6,568
2006 6,568
2007 3,716
Thereafter 11,075
-------
Total minimum payments $43,058
=======
In connection with the leases included in the table above, the Company
obtained and delivered irrevocable letters of credit in the aggregate amount
of $889,000 as security deposits under such leases.
Rent expense was $12,001,000, $12,756,000 and $10,783,000 during the fiscal
years ended September 28, 2002, September 29, 2001 and September 30, 2000,
respectively. Rent expense for the fiscal years ended September 29, 2001 and
September 30, 2000 includes approximately $218,000 and $109,000 of operating
lease deferred credits, representing the difference between rent expense
recognized on a straight-line basis and actual amounts currently payable.
There was no effect for operating lease deferred credits for the year ended
September 28, 2002. Contingent rentals, included in rent expense, were
$3,198,000, $3,236,000 and $3,470,000 for the fiscal years ended September
28, 2002, September 29, 2001 and September 30, 2000, respectively.
Legal Proceedings - In the ordinary course of its business, the Company is a
party to various lawsuits arising from accidents at its restaurants and
workmen's compensation claims, which are generally handled by the Company's
insurance carriers.
The employment by the Company of management personnel, waiters, waitresses
and kitchen staff at a number of different restaurants has resulted in the
institution, from time to time, of litigation alleging violation by the
Company of employment discrimination laws. The Company does not believe that
any of such suits will have a materially adverse effect upon the Company, its
financial condition or operations.
A lawsuit was commenced against the Company in October 1997 in the District
Court for the Southern District of New York by 44 present and former
employees alleging various violations of Federal wage and hour laws. The
complaint sought an injunction against further violations of the labor laws
and payment of unpaid minimum wages, overtime and other allegedly required
amounts, liquidated damages, penalties and attorney's fees. The lawsuit was
settled for approximately $1,245,000 in May 2001. Based upon settlement
discussion in the fourth quarter of fiscal 2000, the Company recorded a
charge of $1,300,000 at that time.
Several unfair labor practice charges were filed against the Company in 1997
with the National Labor Relations Board ("NLRB") with respect to the
Company's Las Vegas subsidiary. The charges were heard in October 1997. At
issue was whether the Company unlawfully terminated nine employees and
disciplined six other employees allegedly in retaliation for their union
activities. An Administrative Law Judge found that six employees were
terminated unlawfully and three were discharged for valid reasons and four
employees were disciplined lawfully and two employees unlawfully. On appeal,
the NLRB found that the Company lawfully disciplined five employees and
unlawfully disciplined one employee. The Company is appealing the adverse
rulings of the NLRB to the D.C. Circuit Court of Appeals. The
F-15
Company does not believe that an adverse outcome in this proceeding will
have a material adverse effect upon the Company's financial condition or
operations.
9. COMMON STOCK REPURCHASE PLAN
In August 1998, the Company authorized the repurchase of up to 500,000
shares of the Company's outstanding common stock. In April 1999, the Company
authorized the repurchase of an additional 300,000 shares of the Company's
outstanding common stock. For the years ended September 29, 2001 and
September 30, 2000, the Company repurchased 400 and 141,000 shares at a
total cost of $3,000 and $1,350,000, respectively. For the year ended
September 28, 2002, there were no repurchases of common stock.
10. STOCK OPTIONS
On October 15, 1985, the Company adopted a Stock Option Plan (the "Plan")
pursuant to which the Company reserved for issuance an aggregate of 175,000
shares of common stock. In May 1991 and March 1994, the Company amended such
Plan to increase the number of shares issuable under the Plan to 350,000 and
448,000, respectively. In March 1996, the Company adopted a second plan and
reserved for issuance an additional 135,000 shares. Subsequent amendments in
March 1997, February 1999 and March 2001 increased the number of shares
included under the plan to 270,000, 470,000 and 650,000, respectively.
Options granted under the Plans to key employees are exercisable at prices
at least equal to the fair market value of such stock on the dates the
options were granted. The options expire five years after the date of grant
and are generally exercisable as to 25% of the shares commencing on the
first anniversary of the date of grant and as to an additional 25%
commencing on each of the second, third and fourth anniversaries of the date
of grant.
Additional information follows:
2002 2001 2000
--------------------- --------------------- ---------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
Outstanding, beginning of year 330,000 $ 10.72 343,000 $10.76 488,000 $10.65
Options:
Granted 240,000 6.30 10,000 7.50 - -
Exercised - - (41,000) 8.00
Canceled or expired (177,500) 10.24 (23,000) 9.89 (104,000) 11.32
-------- -------- --------
Outstanding, end of year (a) 392,500 7.91 330,000 10.72 343,000 10.76
======== ======== ========
Exercise price, outstanding options $6.30 - 10.00 $7.50 - $12.00 $9.50 - $12.00
Weighted average years 3.06 Years 1.65 Years 2.62 Years
Shares available for future grant 371,000 320,000 127,000
Options exercisable (a) 168,000 10.00 229,000 11.15 157,000 11.24
(a) Options become exercisable at various times until expiration dates
ranging from December 2003 through December 2006.
Statement of Financial Accountings Standards No. 123, Accounting for
Stock-Based Compensation ("SFAS No. 123"), requires the Company to disclose
pro forma net income and pro forma earnings per share information for
employee stock option grants to employees as if the fair-value method
defined in
F-16
SFAS No. 123 had been applied. The Company utilized the Black-Scholes
option-pricing model to quantify the pro forma effects on net income and
earnings per share of the options granted and outstanding for fiscal 2002
and fiscal 2001. There were no options granted during fiscal 2000.
The weighted-average assumptions which were used for fiscal 2002 and fiscal
2001 included risk free interest rates of 4.25% and 5.5% and volatility of
35% and 45%, respectively. An expected life of four years for both years was
used. No annual dividend yield was assumed for either fiscal 2002 or fiscal
2001. The weighted average grant date fair value of options granted and
outstanding during fiscal 2002 and fiscal 2001 was $2.05 and $2.87
respectively.
The pro forma impact was as follows:
(in Thousands, Except per Share Amounts)
Years Ended
------------------------------------------------
September 28, September 29, September 30,
2002 2001 2000
Net income (loss) as reported $4,229 $(6,848) $(3,723)
Net income (loss) - pro forma 4,088 (7,053) (3,957)
Earnings per share as reported - basic $ 1.33 $ (2.15) $ (1.11)
Earnings per share as reported - diluted 1.32 (2.15) (1.11)
Earnings per share pro forma - basic $ 1.29 $ (2.22) $ (1.18)
Earnings per share pro forma - diluted 1.28 (2.22) (1.18)
The exercise of nonqualified stock options in the fiscal year 2000, resulted
in an income tax benefit of $16,000, which was credited to additional
paid-in capital. The income tax benefit results from the difference between
the market price on the exercise date and the option price.
11. MANAGEMENT FEE INCOME
As of September 28, 2002, the Company provides management services to one
restaurant owned by an outside party. In accordance with the contractual
arrangements, the Company earns management fees based on operating profits
as defined by the agreement.
Restaurants managed had sales of $2,973,000, $4,380,000 and $8,867,000
during the management periods within the years ended September 28, 2002,
September 29, 2001 and September 30, 2000, respectively, which are not
included in consolidated net sales of the Company.
12. INCOME TAXES
The provision for income taxes reflects Federal income taxes calculated on a
consolidated basis and state and local income taxes calculated by each
subsidiary on a nonconsolidated basis. For New York State and City income
tax purposes, the losses incurred by a subsidiary may only be used to offset
that subsidiary's income.
F-17
The provision (benefit) for income taxes consists of the following:
(In Thousands)
Years Ended
------------------------------------------------
September 28, September 29, September 30,
2002 2001 2000
Current provision (benefit):
Federal $(2,151) $(1,008) $(1,129)
State and local 872 773 782
------- ------- -------
(1,279) (235) (347)
------- ------- -------
Deferred provision (benefit):
Federal 2,784 (3,022) (1,286)
State and local (86) (85) (273)
------- ------- -------
2,698 (3,107) (1,559)
------- ------- -------
$ 1,419 $(3,342) $(1,906)
======= ======= =======
The provision for income taxes differs from the amount computed by applying the
Federal statutory rate due to the following:
(In Thousands)
Years Ended
------------------------------------------------
September 28, September 29, September 30,
2002 2001 2000
Provision (benefit) for Federal
income taxes (34%) $1,920 $(3,465) $(1,849)
State and local income taxes net of Federal
tax benefit 575 454 336
Amortization of goodwill 26 26 25
Tax credits (755) (489) (503)
Other (347) 132 85
------ ------- -------
$1,419 $(3,342) $(1,906)
====== ======= =======
F-18
Deferred tax assets or liabilities are established for: (a) temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes, and (b)
operating loss carryforwards. The tax effects of items comprising the Company's
net deferred tax asset are as follows:
September 28, September 29,
2002 2001
Deferred tax assets (liabilities):
Operating loss carryforwards $ 1,721 $ 1,539
Operating lease deferred credits 461 430
Carryforward tax credits 5,641 4,105
Depreciation and amortization (1,829) (2,019)
Deferred gains (146) (195)
Valuation allowance (1,031) (941)
Inventory (269) -
Asset impairment - 3,415
------- -------
$ 4,548 $ 6,334
======= =======
A valuation allowance for deferred taxes is required if, based on the evidence,
it is more likely than not that some of the deferred tax assets will not be
realized. The Company believes that uncertainty exists with respect to future
realization of certain operating loss carryforwards and operating lease deferred
credits. Therefore, the Company provided a valuation allowance of $1,031,000 at
September 28, 2002 and $941,000 at September 29, 2001. The Company has state
operating loss carryforwards of $23,219,000 and local operating loss
carryforwards of $18,359,000, which expire in the years 2003 through 2016.
During the fiscal year ended September 30, 2000, the Company and the Internal
Revenue Service finalized the adjustments to the Company's Federal income tax
returns for the fiscal years ended September 28, 1991 through October 1, 1994.
During the fiscal year ended September 28, 2002, the Company and the Internal
Revenue Service finalized the adjustments to the Company's federal income tax
returns for the fiscal years ended September 30, 1995 through October 3, 1998.
The final adjustments, in both settlements, primarily relate to: (i) legal and
accounting expenses incurred in connection with new or acquired restaurants that
the Internal Revenue Service asserts should have been capitalized and amortized
rather than currently expensed and (ii) travel and meal expenses for which the
Internal Revenue Service asserts the Company did not comply with certain record
keeping requirements or the Internal Revenue Code. These settlements did not
have a material effect on the Company's financial condition.
F-19
13. OTHER INCOME
Other income consists of the following:
(In Thousands)
Years Ended
--------------------------------------------------
September 28, September 29, September 30,
2002 2001 2000
Purchasing service fees $123 $106 $ 65
Other 307 55 193
---- --- ----
$430 $161 $258
==== ==== =====
14. INCOME PER SHARE OF COMMON STOCK
A reconciliation of the numerators and denominators of the basic and diluted
per share computations for the fiscal year ended September 28, 2002 follows.
For the years ended September 29, 2001 and September 30, 2000, there were no
dilutive stock options and warrants.
(In Thousands, Except Per Share Amounts)
Income Shares Per-Share
(Numerator) (Denominator) Amount
Year ended September 28, 2002:
Basic EPS $4,229 3,181 $ 1.33
Stock options and warrants - 25 (0.01)
------ ----- ------
Diluted EPS $4,229 3,206 $1.32
====== ===== =====
For the years ended September 28, 2002, September 29, 2001, and September
30, 2000, shares of 34,000, 330,000 and 343,000, respectively, were not
included in the computation of diluted EPS because to do so would have been
antidilutive.
F-20
15. QUARTERLY INFORMATION (UNAUDITED)
The following table sets forth certain quarterly operating data.
(In Thousands Except Per Share Amounts)
Fiscal Quarters Ended
---------------------------------------------------------------
December 31, March 29, June 29, September 28,
2001 2002 2002 2002
2002
Food and Beverage Sales $25,781 $26,149 $33,261 $29,916
Net income (loss) 974 (189) 1,836 1,608
Net income (loss) per share
basic $ 0.31 $ (0.06) $ 0.58 $ 0.51
Net income (loss) per share
diluted $ 0.31 $ (0.06) $ 0.57 $ 0.50
(In Thousands, Except Per Share Amounts)
Fiscal Quarters Ended
---------------------------------------------------------------
December 30, March 31, June 30, September 29,
2000 2001 2001 2001
2001
Food and beverage sales $30,815 $28,417 $36,805 $30,970
Net income (loss) 225 (1,000) 1,958 (8,031)
Net income (loss) per share
basic and diluted $ .07 $ (.31) $ .62 $ (2.52)
F-21
Fiscal Quarters Ended
-----------------------------------------------------------
January 1, April 1, July 1, September 30,
2000 2000 2000 2000
2000
Food and beverage sales $26,957 $25,765 $33,810 $32,680
Cumulative effect of accounting change (189) - - -
Net income (loss) 91 (4,972) 1,770 (612)
Net income (loss) per share -
basic and diluted $ 0.03 $ (1.56) $ 0.56 $ (0.19)
16. STOCK OPTION RECEIVABLES
Stock option receivables include amounts due from officers and directors
totaling $716,000 and $760,000 at September 28, 2002 and September 29, 2001,
respectively. Such amounts which are due from the exercise of stock options
in accordance with the Company's Stock Option Plan are payable on demand
with interest at 1/2% above prime (5.25% at September 28, 2002).
17. RELATED PARTY TRANSACTIONS
Mr. Donald D. Shack, a director of the Company, is a member of the firm
Shack Siegel Katz Flaherty & Goodman P.C., general counsel to the Company.
The Company incurred $353,000, $436,000, and $324,000 in legal fees to such
firm during the years ended September 28, 2002, September 29, 2001, and
September 30, 2000, respectively.
Receivables due from officers and employees, excluding stock option
receivables, totaled $897,000 at September 28, 2002 compared to $501,000 at
September 29, 2001. Other employee loans totaled $148,000 at September 28,
2002 compared to $287,000 at September 29, 2001. Such loans bear interest at
the minimum statutory rate (2.13% at September 28, 2002).
18. SUBSEQUENT EVENT (UNAUDITED)
In October 2002, the Company sold some furniture, fixtures and equipment
related to the Aladdin operations for $240,000. The Company recognized a
gain of $240,000, in fiscal 2003, on the transaction since all of the fixed
assets for the Aladdin operations had been written off during the ended
September 28, 2002.
******
F-22
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
ARK RESTAURANTS CORP.
By: /s/ Michael Weinstein
-------------------------------------
Michael Weinstein
President and Chief Executive Officer
Date: December 27, 2002
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been duly signed by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ Ernest Bogen Chairman of the Board and December 27, 2002
- ---------------------------- Director
(Ernest Bogen)
/s/ Michael Weinstein President, Chief Executive December 27, 2002
- ---------------------------- Officer and Director
(Michael Weinstein)
/s/ Vincent Pascal Senior Vice President, December 27, 2002
- ---------------------------- Secretary and Director
(Vincent Pascal)
/s/ Robert Towers Executive Vice President, December 27, 2002
- ---------------------------- Treasurer, Chief Operating
(Robert Towers) Officer and Director
/s/ Robert Stewart Chief Financial Officer December 27, 2002
- ----------------------------
(Robert Stewart)
/s/ Donald D. Shack Director December 27, 2002
- ----------------------------
(Donald D. Shack)
/s/ Jay Galin Director December 27, 2002
- ----------------------------
(Jay Galin)
/s/ Paul Gordon Senior Vice President December 27, 2002
- ---------------------------- and Director
(Paul Gordon)
/s/ Bruce R. Lewin Director December 27, 2002
- ----------------------------
(Bruce R. Lewin)
CERTIFICATIONS
I, Michael Weinstein, Chief Executive Officer of Ark Restaurants Corp., certify
that:
1. I have reviewed this annual report on Form 10-K of Ark Restaurants Corp.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is
being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of
the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit committee
of registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
/s/ Michael Weinstein
-------------------------------
Michael Weinstein
Chief Executive Officer
December 27, 2002
I, Robert J. Stewart, Chief Financial Officer of Ark Restaurants Corp., certify
that:
1. I have reviewed this annual report on Form 10-K of Ark Restaurants Corp.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this annual report is being prepared;
evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this annual
report (the "Evaluation Date"); and
presented in this annual report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit committee
of registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
/s/ Robert J. Stewart
---------------------------
Robert J. Stewart
Chief Financial Officer
December 27, 2002
Exhibit Index
*3.1 Certificate of Incorporation of the Registrant, filed with the
Secretary of State of the State of New York on January 4, 1983.
*3.2 Certificate of Amendment of the Certificate of Incorporation of the
Registrant filed with the Secretary of State of the State of New York
on October 11, 1985.
*3.3 Certificate of Amendment of the Certificate of Incorporation of the
Registrant filed with the Secretary of State of the State of New York
on July 21, 1988.
*3.4 Certificate of Amendment of the Certificate of Incorporation of the
Registrant filed with the Secretary of State of the State of New York
on May 13, 1997.
3.5 Certificate of Amendment of the Certificate of Incorporation of the
Registrant filed on April 24, 2002 incorporated by reference to Exhibit
3.5 to the Registrant's Quarterly Report on Form 10-Q for the quarterly
period ended March 30, 2002 (the "Second Quarter 2002 Form 10-Q").
3.6 By-Laws of the Registrant, incorporated by reference to Exhibit 3.2 to
the Registrant's Registration Statement on Form S-18 filed with the
Securities and Exchange Commission on October 17, 1985.
10.1 Amended and Restated Redemption Agreement dated June 29, 1993 between
the Registrant and Michael Weinstein, incorporated by reference to
Exhibit 10.1 to the Registrant's Annual Report on Form 10-K for the
fiscal year ended October 2, 1999 ("1994 10-K").
10.2 Form of Indemnification Agreement entered into between the Registrant
and each of Michael Weinstein, Ernest Bogen, Vincent Pascal, Robert
Towers, Jay Galin, Robert Stewart, Bruce R. Lewin, Paul Gordon and
Donald D. Shack, incorporated by reference to Exhibit 10.2 to the 1994
10-K.
10.3 Ark Restaurants Corp. Amended Stock Option Plan, incorporated by
reference to Exhibit 10.3 to the 1994 10-K.
10.4 Fourth Amended and Restated Credit Agreement dated as of December 27,
1999 between the Company and Bank Leumi USA, incorporated by reference
to Exhibit 10.4 to the Registrant's Annual Report on Form 10-K for the
fiscal year ended October 2, 1999.
10.5 Ark Restaurants Corp. 1996 Stock Option Plan, as amended, incorporated
by reference to the Registrant's Definitive Proxy Statement pursuant to
Section 14(a) of the Securities Exchange Act of 1934 (Amendment No. 1)
filed on March 16, 2001.
10.6 Lease Agreement dated May 17, 1996 between New York-New York Hotel,
LLC, and Las Vegas America Corp., incorporated by reference to Exhibit
10.6 to the Registrant's Annual Report on Form 10-K for the fiscal year
ended October 3, 1998 (the "1998 10-K").
10.7 Lease Agreement dated May 17, 1996 between New York-New York Hotel,
LLC, and Las Vegas Festival Food Corp., incorporated by reference to
Exhibit 10.7 to the 1998 10-K.
10.8 Lease Agreement dated May 17, 1996 between New York-New York Hotel,
LLC, and Las Vegas Steakhouse Corp., incorporated by reference to
Exhibit 10.8 to the 1998 10-K.
10.9 Amendment dated August 21, 2000 to the Fourth Amended and Restated
Credit Agreement dated as of December 27, 1999 between the Company and
Bank Leumi USA, incorporated by reference to Exhibit 10.9 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
September 30, 2000 (the "2000 10-K").
10.10 Amendment dated November 21, 2000 to the Fourth Amended and Restated
Credit Agreement dated as of December 27, 1999 between the Company and
Bank Leumi USA, incorporated by reference to Exhibit 10.10 to the 2000
10-K.
10.11 Amendment dated November 1, 2001 to the Fourth Amended and Restated
Credit Agreement dated as of December 27, 1999 between the Company and
Bank Leumi USA, incorporated by reference to Exhibit 10.11 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
September 29, 2001 (the "2001 10-K").
10.12 Amendment dated December 20, 2001 to the Fourth Amended and Restated
Credit Agreement dated as of December 27, 1999 between the Company and
Bank Leumi USA, incorporated by reference to Exhibit 10.11 of the 2001
10-K.
10.13 Amendment dated as of April 23, 2002 to the Fourth Amended and Restated
Credit Agreement dated as of December 27, 1999 between the Company and
Bank Leumi USA, incorporated by reference to Exhibit 10.13 of the
Second Quarter 2002 Form 10-Q.
*21 Subsidiaries of the Registrant.
*23 Consent of Deloitte & Touche LLP.
*99.1 Certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.
- ---------------
* Filed herewith.